UNITED
STATES
SECURITIES
EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
#1
To
FORM
10-K
ANNUAL
REPORT PURSUANT TO
THE
SECURITIES EXCHANGE ACT OF 1934
For
the Fiscal Year Ended September 30, 2007
Commission
File Number 000-29621
XSUNX,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
Colorado
|
|
84-1384159
|
(State
of Incorporation)
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|
(I.R.S.
Employer
Identification
No.)
|
65
Enterprise, Aliso Viejo, CA 92656
(Address
of Principal Executive Offices) (Zip Code)
(949)
330-8060
(Registrant’s
Telephone Number)
Securities
registered pursuant to Section 12(b) of the Act: Title of each class:
None
Name
of
Each Exchange on which Registered:
N/A
Securities
registered pursuant to Section 12(g) of the Act: Title of each class:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
o
NO
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
NO
x
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), (2) has been subject to the filing requirements for
at
least the past 90 days. Yes
x
NO
o
Check
if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated file, an accelerated
filer, or a non-accelerated filer.
(Check
one):
|
|
|
|
|
o
Large accelerated filer
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|
x
Accelerated filer
|
|
o
Non-accelerated
filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) (Check one): Yes
o
NO
x
As
of
September 30, 2007, the aggregate market value of the registrant’s Common Stock
held by nonaffiliates of the registrant was approximately $54,584,383 million
based on the closing price as reported on the NASDAQ OTCBB Market.
As
of December 28, 2007, there were 164,752,188 shares of the registrant’s
Common Stock outstanding.
XSUNX,
INC.
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1. Business
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1
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Item
1A. Risk Factors
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12
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Item
1B. Unresolved Staff Comments
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16
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Item
2. Properties
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16
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Item
3. Legal Proceedings
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17
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Item
4. Submission of Matters to a Vote of Security
Holders
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17
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PART
II
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Item
6. Selected Financial Data
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22
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Item
7. Management’s Discussion and Analysis or Plan of
Operations
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23
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Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
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31
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Item
8. Financial Statements and Supplementary
Data
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32
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Item
9. Changes in and Disagreements on Accounting and
Financial Disclosure
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32
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Item
9A. Controls and Procedures
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32
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Item
9B. Other Information
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35
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PART
III
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Item
10. Directors, Executive Officers, and Corporate
Governance
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38
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Item
11. Executive Compensation
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40
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Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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42
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Item
13. Certain Relationships and Related Transactions, and Director
Independence
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43
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Item
14. Principal Accounting Fees and Services
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43
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PART
IV
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Item
15. Exhibits, Financial Statement Schedules
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44
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Signatures
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48
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Explanatory
Statement
We
are
filing this Amendment Number One to our Annual report on Form 10 K to enhance
our disclosures in the following areas:
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·
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Revised
audit report to make it clear that Since Inception numbers were audited
and the present auditors are relying on the work of previous auditors.
This enhancement can be found in Part
IV.
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·
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Enhance
the deferred tax asset disclosures in note 3 to the financial statements
entitled Federal Incomes Tax.
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·
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Enhance
the disclosures relating to the Company’s Marketable Prototype in note 7
to the financial statements entitled Marketable Production Machine
Acquisition.
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·
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Enhance
the disclosures relating to the Company’s Option and Warrant Expenses in
note 2, Summary of Significant Accounting Policies and note 6, Stock
Options and Warrants to the financial
statements.
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·
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Revised
our discussion of the Company’s Internal Controls to state the internal
control framework the Company is using. This can be found in Item
9A -
Controls and Procedures.
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As
a
result, of these changes, we are also filing new Certificates has Exhibits
31.1,
31.2, 32.1 and 32.2 hereto.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933,
which are subject to risks, uncertainties and assumptions that are difficult
to
predict. All statements in this Annual Report on Form 10-K, other than
statements of historical fact, are forward-looking statements. These
forward-looking statements are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The forward-looking statements
include statements, among other things, concerning our business strategy,
including anticipated trends and developments in and management plans for,
our
business and the markets in which we operate; future financial results,
operating results, revenues, gross margin, operating expenses, products,
projected costs and capital expenditures; research and development programs;
sales and marketing initiatives; and competition. In some cases, you can
identify these statements by forward-looking words, such as “estimate”,
“expect”, “anticipate”, “project”, “plan”, “intend”, “believe”, “forecast”,
“foresee”, “likely”, “may”, “should”, “goal”, “target”, “might”, “will”,
“could”, “predict” and “continue”, the negative or plural of these words and
other comparable terminology. The forward-looking statements are only
predictions based on our current expectations and our projections about future
events. All forward-looking statements included in this Annual Report on Form
10-K are based upon information available to us as of the filing date of this
Annual Report on Form 10-K. You should not place undue reliance on these
forward-looking statements. We undertake no obligation to update any of these
forward-looking statements for any reason. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance, or achievements to differ
materially from those expressed or implied by these statements. These factors
include the matters discussed in the section entitled “Item 1A: Risk Factors”
and elsewhere in this Form 10-K. You should carefully consider the risks and
uncertainties described under this section.
For
further information about these and other risks, uncertainties and factors,
please review the disclosure included in this report under Item 1A “Risk
Factors.”
PART
I
Item
1. Business.
In
this Report, we use the terms “Company,” “XsunX,” “we,” “us,” and “our,” unless
otherwise indicated, or the context otherwise requires, to refer to XsunX,
Inc.
Business
Overview
XsunX
is
a thin-film photovoltaic (“TFPV”) company that intends to grow its business by
manufacturing TFPV amorphous solar modules and selling them into what we believe
is a high growth solar market opportunity. Our decision to pursue this strategy
is based on our three years of research in the design and use of technologies
for the manufacture of TFPV solar cells utilizing amorphous silicon. During
this
time we have developed the technical capabilities, qualified core staff, and
market understanding that we believe will be necessary to establish product
manufacturing infrastructure and take our product to market.
We
have
designed a TFPV solar module which we believe will deliver an average of 125
peak watts. To produce solar modules in commercial quantities we intend to
processes glass substrates within a proprietary semiconductor manufacturing
system which employs the design of a high-throughput, automated, continuous
process. We believe that the design of our TFPV module and manufacturing system
can deliver per watt costs significantly less than those of traditional
crystalline silicon solar module manufacturers, and allow us to market TFPV
modules that will be highly competitive with other thin film offerings.
Our
plan
for growth is to build and operate a TFPV solar module manufacturing facility
in
the state of Oregon. Employing a phased roll-out of manufacturing capacities,
our baseline production system is scheduled for installation in mid calendar
year 2008, the installation of our first 25MW line is scheduled near the end
of
calendar 2008, and the installation of our 4
th
25MW
line is scheduled for early 2010. In anticipation of commercial production,
we
have begun to market our TFPV solar module under the brand name of the XsunX
ASI-120. Furthermore, we have successfully developed and implemented a pre-sales
reservation program for system installers and large users of solar.
Markets
We
believe the solar market represents a high growth opportunity nationally and
internationally, both currently and into the foreseeable future. The global
demand for electrical energy has experienced significant growth due to growth
in
populations and the economic vitality of emerging economies. This has created
a
growing need to diversify and establish new sources of electrical production,
and we believe has created tremendous opportunities for growth in the solar
market. Within the markets for solar products we anticipate that growth in
demand for solar products based on TFPV technologies will out perform the
balance of the solar market.
Macro
growth drivers for solar energy production products include political support
and government subsidies, high energy prices, technical progress having led
to
cost reductions in manufacturing techniques, and advantages over other renewable
energy sources including:
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•
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Proven,
commercialized and widely used solar technologies adapting to a host
of
applications
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•
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Negligible
environmental impact
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•
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Reliability,
little or no delivery risk
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•
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Maximum
power generation coincides with peak energy demands
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•
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Potential
for distributed point of use generation
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Growth
drivers that we believe may allow TFPV to outpace the balance of the solar
market include:
|
•
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Highly
scalable and automated manufacturing processes
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•
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Lower
material costs and fewer constraints to sufficient material supplies
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•
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Lower
per watt production costs for solar cells and integrated solar modules
|
Driving
our solar module manufacturing plan is what we believe to be the ability to
capitalize on long term growth in solar spurred by increasing electrical energy
costs and demand. Large markets are developing for commercial operators of
private solar farms, utilities meeting green mandates, government subsidized
installations, and operators of large commercial and industrial properties.
These projects represent large installations typically approaching 1MW or more.
While
we
believe that the market conditions are excellent for all producers of solar
products, we intend to deliver thin film solar products that provide extra
value
in performance and cost.
Products
Solar
Modules
In
designing our XsunX ASI-120 module, we interviewed solar systems integrators
and
developed a design that we believe provides for a module delivering high power
output (relative to other thin films), and size and framing that would allow
for
the use of many existing mounting systems. In doing so, we believe our modules
strike a balance between higher rated power silicon wafer modules and lower
rated power thin film modules. Further, we believe the market will dictate
retail installed pricing. Systems integrators will look to sell installed watts
at market dictated prices, and after accounting for certain fixed installation
costs inherent to each of the different solar technologies, they will drive
pricing per watt for factory delivered modules to compensate for any added
installation costs when using certain technologies.
We
have
focused on the development of thin film amorphous technologies and products
due
to what we perceive as inherent advantages of amorphous silicon over other
solar
absorbers in regards to conversion efficiencies. Amorphous silicon produces
more
power earlier in the day and later into the evening because it requires less
incident light than many other technologies. Amorphous silicon also exhibits
less thermal coefficient degradation effects when operating in hot climates.
In
contrast, other thin film and conventional silicon wafer technologies degrade
at
significant rates of approximately 10% to 20% conversion loss of peak rated
performance when operating at normal temperatures of 65 degrees centigrade.
We
plan
to deposit two separate solar cell layers of amorphous silicon on to a glass
substrate. This is to increase the amount of absorbed and converted solar energy
in our modules. Based on previous experimental and limited commercial use of
our
thin film deposition recipes, we anticipate the finished solar module to produce
7.9% frame to frame efficiency delivering approximately 125 peak watts of direct
current “DC” power. We believe that we may be able to improve conversion
efficiencies through the use of derivative forms of amorphous and other
proprietary cell structures.
We
anticipate that we can present the superior per-rated-watt-performance of
amorphous in “real world” operating conditions as a competitive strength over
the factory-rated performance of various other solar technologies. We believe
these factors will influence the purchasing decision process of large solar
power farms and utility size installations.
Product
Competitive Strengths
Other
product and manufacturing design strengths that may allow us to become a
competitive force within the solar energy industry and the broader electric
power industry include:
Cost-Per-Watt
Advantage.
We
contend the design of our solar module and our vertical, in-line, continuous
process production system may allow us to take advantage of economies of scale
and accelerate development cycles, enabling possible further reductions in
our
manufacturing costs per watt. As we introduce planned manufacturing efficiency
gains, we anticipate our per watt production costs to fall from initially $1.58
in 2008 to approximately $1.19 per watt by 2011. We believe this pricing will
continue to be significantly less than the costs of crystalline silicon solar
modules. As we mature and integrate new cell designs and materials, we believe
the opportunity exists to drive cell performance above 8% and deliver wholesale
costs per watt approaching $1 per watt or less.
Stable
Material Availability.
Our
planned operations are not impacted by the current shortage of polysilicon
(a
key raw material for conventional non thin film solar module products) that
is
affecting most of our competitors through higher costs and limited availability.
The key raw materials to be used in our solar module design are low iron
tempered glass, high purity industrial gases such as argon, nitrogen, hydrogen,
and silane
and
germane, and extruded aluminum for module framing with polymer materials
employed in the encapsulation for weather proofing. We believe we have adequate
sources for the supply of these key raw materials and components for our
manufacturing needs and in most instances, have selected multiple source
suppliers. As we begin to scale manufacturing efforts, we may single out certain
key suppliers to enhance efficiency, cost and quality. The cost of certain
raw
materials may rise over the next several years and we intend to actively manage
these costs through purchasing strategies, product design, and operating
improvements.
Non-Toxic
Finished Product.
The
design of our amorphous solar module transfers no heavy metals or toxic
compounds in the finished product. Conventional polysilicon solar modules
contain lead based cell interconnections and thin films such as cadmium
telluride (CdTe) and copper indium gallium selenide (CIGS) contain toxic
materials in the finished product.
Large
Area, High Power Delivery Module Design.
Our
intent and execution plan is to work on establishing the most efficient way
to
deliver a commercially viable solar module at competitive price points as
opposed to focusing strictly on how to increase energy conversion efficiencies
of the solar cell. Our solar module is based on established module designs
and
well known manufacturing processes necessary to deliver a large area, TFPV
module producing what we believe to be nearly twice the rated power delivery
per
module of other thin film offerings. We believe this design will require fewer
solar panels per installation compared to the use of other thin film systems,
thereby reducing the overall costs associated with mounting, installation,
wiring and interconnection of fewer parts and pieces.
Knowledgeable
System Component Vendor Base.
Amorphous
TFPV benefits from nearly thirty years of process development and research,
which has produced a knowledgeable and experienced vendor base. These vendors
provide access to improved semiconductor device technologies resulting in
improvements to manufacturing processes in related areas such as thin film
transistors, memory devices, and high performance opto-electric coatings. We
have engaged a select group of these vendors and established a primary and
secondary vendor for each major system component.
Certifications
We
have
selected components for use in our TFPV solar module that have previously been
tested by Underwriters Laboratories (UL) and approved for use in the manufacture
of solar modules. We plan to submit these materials, and a full scale working
sample of our TFPV module, to UL for the purpose of receiving UL certification
1703 in the 2008 period. Upon completion of initial module production
capabilities we plan to submit modules for participation in laboratory and
field
tests with the National Renewable Energy Laboratory, the Fraunhofer Institute
for Solar Energy.
We
plan
to work to achieve and maintain all certifications required to sell solar
modules in the markets we plan or expect to serve, including UL 1703, IEC 61646,
TÜV Safety Class II and CE.
Planned
Manufacturing Capacities
Production
Line Features
The
core
feature of our plan revolves around the design of an efficient mass production
system. The design utilizes an in-line vertical glass coating system processing
two balanced and independent lines simultaneously. This design incorporates
material handling, cell deposition, laser segmentation, cleaning, and module
packaging functions necessary to convert an inexpensive piece of 100cm X 160cm
sheet glass into a complete solar module in less than three hours. Our process
uses only a fraction of the semiconductor material that would be necessary
to
produce crystalline silicon solar modules.
Phased
Production Build Out and Planned Capacities
In
the
2008 calendar year, we anticipate completing the assembly and installation
of a
small scale baseline production system and initiating construction of our first
full scale 25 MW system. We further anticipate that the baseline production
system will generate limited solar module production in 2008 for use in fueling
our sales channel and establishing product recognition for larger quantity
sales
in 2009. We anticipate completing the assembly of and commissioning our first
25MW line between December 2008 and January 2009. Near the end of the 2008
calendar year, we plan to launch the build-out of the first of three additional
25 MW
systems
necessary to eventually bring our capacity to 100MW. Barring assembly delays,
the first of these lines is slated to come on-line in November 2009, the second
in January 2010, and the final 25MW in March 2010. We intend to use the balance
of the 2010 year to continue to work to improve system utilization, add shifts,
and increase module yields to bring our production to peak capacities of 100MW
or more of annualized solar module production. To complete each new production
line, we plan to use a systematic replication process that is designed to enable
us to add production lines rapidly and efficiently, and achieve operating
metrics that are comparable to the performance of our initial 25MW system.
Production
Line Planned Utilization and Production Costs
Each
system, or line, has an estimated annualized initial module production capacity
of approximately 25 megawatts, “MW” per annum, based on an initial 58% system
utilization (the percentage of system utilization in each 7 day by 24 hour
period) and 80% yield (the percentage of product meeting saleable
specifications). We plan to ramp-up system utilization and yield to industry
standards of 80% & 85% respectively over the course of the first full year
of production in 2009, thereby increasing total production capacities per line
to an anticipated 33MW. Initial per watt production costs during ramp-up of
operations in the 2009 period are anticipated to be $1.58 per watt. As we
improve system utilization and production yield in 2009, we anticipate our
production costs will lower to $1.38 in 2010 and $1.19 in 2011. By continuing
to
expand production and improve solar energy conversion efficiencies and
manufacturing processes, we believe we can further reduce our manufacturing
costs per watt and improve our cost advantage over traditional crystalline
silicon solar module manufacturers.
At
present, the majority of our operations development efforts for the period
ending September 2008 and the foreseeable future thereafter will focus on
establishing and expanding facilities necessary to manufacture our TFPV solar
modules for commercial sale. Areas of specific focus and capital expenditures
include:
|
(a)
|
Lease
and preparation of facilities necessary to house and operate, at
minimum,
our first of four proposed 25MW manufacturing lines; and
|
|
(b)
|
Establishment
of a baseline production system to produce full size (100cm × 160cm)
sample modules; and
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(c)
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The
placement of orders with select vendors for the core and sub-system
components necessary to begin assembly leading to the commissioning
of the
first of four proposed 25MW manufacturing lines; and
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(d)
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Continued
R&D efforts to establish enhanced solar cell deposition methods and
reduce manufacturing costs.
|
The
purpose of these ongoing investments is to first establish a base TFPV solar
module manufacturing infrastructure necessary to produce approximately 25MW
of
annualized solar module production, and second, to establish a replication
process designed to enable us to add the balance of our proposed three
additional production lines as rapidly and efficiently as possible.
The
following chart summarizes our planned initial production capacity and
installation timing:
Manufacturing
Facility
|
|
Number of
Production Lines
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Initial Annualized
Solar Modules*
|
|
Initial Annualized
Watts*
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Anticipated System
Commissioning Date
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1st
line
|
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1
|
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190,000
|
|
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25MW
|
|
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Dec
2008
|
|
Addition
of 2
nd
line
|
|
|
1
|
|
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190,000
|
|
|
25MW
|
|
|
Nov
2009
|
|
Addition
of 3
rd
line
|
|
|
1
|
|
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190,000
|
|
|
25MW
|
|
|
Jan
2010
|
|
Addition
of 4
th
line
|
|
|
1
|
|
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190,000
|
|
|
25MW
|
|
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Mar
2010
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|
Total
Planned
|
|
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4
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760,000
|
|
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100MW
|
|
|
|
|
*
|
Annualized
solar module production rates are based on an initial system utilization
rate of 58% (the percentage of system utilization in each 7 day by
24 hour
period) and 80% yield (the percentage of product meeting saleable
specifications). We plan to ramp-up system utilization and yield
to
industry standards of 80% & 85% respectively over the course of the
first full year of production of each system.
|
|
|
We
anticipate that due to normal production variables we will produce
on
average marketable solar modules ranging from between 115 to 130
watts
each.
|
Sales
and Marketing
Driving
our solar module manufacturing plan is what we believe to be the ability to
capitalize on long term growth in solar spurred by increasing electrical energy
costs and demand. Large markets are developing for commercial operators of
private solar farms, utilities meeting green mandates, government subsidized
installations, and operators of large commercial and industrial properties.
These projects represent large installations typically approaching 1MW or more.
Solar
systems installers looking to satisfy the module needs of these large and long
term projects are looking for opportunities to secure access to modules
supplies. We believe that the design and performance of our solar module is
ideally suited for use in these project types, and we further believe that
our
module production capacities can be pre-sold well into the future.
Target
Markets
Our
primary target markets for our TFPV solar modules will be applications for
On-Grid (facilities tied to conventional power distribution infrastructure)
application of 1MW in size and above. Typical applications and buyers would
include:
|
—
|
License
Holders in Germany, Spain & Canada
|
|
—
|
US
installers servicing commercial and utility scale installations
|
|
•
|
Government
Agencies (DOD)
|
|
—
|
Bureau
of Land Management
|
|
•
|
Power
Purchase Agreements
|
|
•
|
Large
Commercial Installations
|
Pricing
Our
analysis made in predicting the anticipated sales per watt for module production
in the years 2009, 2010, and 2011 was based on several factors. These factors
included a review of pricing of both crystalline and thin film per watt sales
trends for the previous several years including 2007 pricing trends. Trends
were
primarily derived from pricing surveys conducted by interviews and an industry
watch firm named SolarBuzz.com. The following pricing of both crystalline and
thin film for September 2007 was produced by SolarBuzz.com:
“The
lowest retail price for a multicrystalline solar module is $4.11 per watt (€3.00
per watt) from a US retailer. The lowest retail price for a monocrystalline
module is $4.30 per watt (€3.14 per watt), also from a US retailer.”
And
“The
lowest thin film module price is at $3.49 per watt (€2.55/Wp) per watt from a
European retailer. As a general rule, it is typical to expect thin film modules
to be at a price discount to crystalline silicon (for like module powers).
This
thin film price is represented by a 60 watt module.”
The
pricing in the thin film category represents modules below 100 watts of stated
peak power. Specifically, modules producing total peak power of only 60 watts
were priced lowest at $3.49 per watt.
XsunX
determined that a key driver in the lower price point for most thin film in
relation to crystalline modules was the discount value assigned to the lower
total power output per module requiring more modules per installation. As an
example, if a 10kW project were to employ the use of 65 watt cadmium telluride
(CdTe)
or
copper indium gallium selenide (CIGS) modules as opposed to 125 watt amorphous
silicon (a-Si) modules, the required number of modules necessary for
installation would be approximately 70 more units. Additional units may also
be
necessary to compensate for thermal coefficient performance loss of a CdTe
or
CIGS solar cell resulting in power production loss from heat at normal operating
temperatures*. In our estimate, this may bring the total number of additional
units to an excess of 70 more 65 watt modules for the same project than with
the
use of a 125 watt amorphous module. To an installer/integrator, the use of
more
modules would increase overall balance of systems (BOS) cost due to increased
labor, mounting hardware, and interconnection cost. We believe that integrators
may demand lower per watt price points for certain modules over others as a
result of these additional system costs.
In
developing price points for the XsunX ASI-120 module, we determined that the
rated power output of our device struck a balance between higher energy density
crystalline modules and the lower power 60 to 75 watt products offered by other
TFPV manufactures such as First Solar, Sharp, and ECD. The following chart
reviews our factory per watt pricing assumptions based on integrator interviews,
industry publications, and our manufacturing cost assumptions.
Period
|
|
Crystalline
|
|
Thin-Film < 100 watt
|
|
XsunX Thin Film > 120 watt
|
|
2009
|
|
$
|
3.25
|
|
$
|
2.25
|
|
$
|
2.60
|
|
2010
|
|
$
|
3.00
|
|
$
|
2.00
|
|
$
|
2.40
|
|
2011
|
|
$
|
2.90
|
|
$
|
1.75
|
|
$
|
2.00
|
|
*
NOTE:
Solar technologies such as silicon wafer, CdTe, and CIGS exhibit performance
loss due to heat. While the factory rated “Peak” power is determined at 25
degrees centigrade, real world operating temperatures average 65 degrees
centigrade. This potential 40 degree increase can affect different solar
technologies in varying percentages of approximately ¼ to ½ percent per degree
in conversion efficiency. This results in an approximate reduction in efficiency
at the “Peak” period (noon) of about 10% to 20%. To place this in perspective, a
100 watt module (silicon wafer, CdTe, CIGS) would deliver approximately 90
to 80
watts of power during the peak periods while operating at 65 degrees centigrade.
Amorphous silicon does not experience the same degree of performance
degradation, realizing only about 3% or less performance loss.
Sales
& Distribution
In
anticipation of commercial production, we have developed a pre-sales reservation
program, based upon the solar module manufacturing industry’s policy of
pre-selling manufacturing capacity to system installers and large users of
solar. This is intended to aid in building a sales channel, loading that channel
with customers interested in purchasing our future module production, and
developing brand presence and recognition as early as possible. The program
enables qualified, interested parties to specify the amount of solar module
capacity they anticipate purchasing at favorable per watt pricing. As of the
date of this report, we have signed reservation agreements with solar system
integrators indicating interest in over 100MW of production in calendar 2008,
2009, 2010. Our agreements provide for the payment of a 5% deposit based on
the
2009 calendar year purchase commitment either prior to, or not later than,
30
days after the delivery by XsunX to the reserving party of commercial samples
for evaluation. The information in this paragraph is designed to summarize
the
general terms of the pre-sales reservation program and market opportunities.
It
is not intended to provide guidance about our future operating results,
including revenues or profitability.
Product
and Technology Development
Since
our
initial reorganization in October 2003 through the second period ended March
2007, we have focused the majority of our operational budgets towards the
development of technological infrastructure, research and development of solar
cell device types and manufacturing techniques, and the licensure of certain
patented and patent pending technologies related to solar cell devices and
manufacturing techniques. We focused on the solar cell structure and thin film
manufacturing processes for amorphous and microcrystalline materials. The
primary business purpose for these efforts was to establish intellectual
property and “know how” that could be sold and/or licensed to third parties for
use in the development of their respective solar product businesses. Over this
period, we committed approximately $4,069,981 towards the above product and
technical “know how” development.
In
March
2007, we re-evaluated our business development and technology plans and launched
efforts to prepare a plan to grow XsunX through the manufacturing and sales
of
TFPV solar modules. Our proposed expansion into solar module manufacturing
required that we develop additional technical expertise in the areas of large
area cell integration and packaging techniques necessary to produce commercially
viable solar modules. Between March 2007 and the period ended September 30,
2007
we focused on the development of a TFPV solar module design, an integrated
manufacturing and assembly line, attracting government incentive programs to
offset start-up and initial operations costs of our proposed facilities, and
the
qualification of systems and material vendors to supply the manufacturing
equipment and materials necessary to establish and operate our proposed
manufacturing facilities.
We
anticipate that for the foreseeable future the core of our operations and
efforts will focus on the establishment of TFPV solar module manufacturing
capabilities. Separately, we continue to explore opportunities with parties
interested in the licensing and cooperative commercial development and use
of
our semi-transparent TFPV technologies.
The
Company continues to develop additional processes, techniques, and device
designs. These research and development efforts may provide the Company with
additional proprietary technology that may lead to the filing of new provisional
and patent applications.
Intellectual
Property
In
September 2003 the Company was assigned the rights to three patents as part
of
an Asset Purchase Agreement with Xoptix Inc., a California corporation. The
patents acquired were No. 6,180,871 for Transparent Solar Cell and Method of
Fabrication (Device), granted on January 30, 2001; No. 6,320,117 for Transparent
Solar Cell and Method of Fabrication (Method of Fabrication), granted on
November 20, 2001; and No. 6,509,204 for Transparent Solar Cell and Method
of
Fabrication (formed with a Schottky barrier diode and method of its
manufacture), granted on January 21, 2003.
XsunX
licensed the patent and technology portfolio of MVSystems, Inc., a Colorado
corporation (“MVSystems”) in September 2004 and then later expanded our use
rights under the license in October 2005. The patents acquired were
Semiconductor Vacuum Deposition System And Method Having A Reel-To-Reel
Substrate Cassette: US6, 258,408 B1: July 10th, 2001 (Method of Fabrication);
and US Provisional Patent Application serial number 60/536,151- three terminal
and four terminal solar cells, solar cell panels, and method of manufacture
(Device and Method of Fabrication). The license granted XsunX the royalty free
exclusive rights for use by XsunX in its pursuit to establish a commercially
viable process for the manufacture of TFPV solar cells and accordingly, included
all MVSystems technology, know how, and resources which are part of or related
to the licensed patents and technology that was then or may become applicable
or
beneficial to the furtherance of the business objectives of XsunX in the future.
The license was exclusive as to technology pertaining to the XsunX field of
use
as it pertains to the business of developing, commercializing and licensing
processes for the manufacture of solar cells or photovoltaic technologies.
Effective
January 1, 2007 we entered into a cooperative development agreement with
Sencera, LLC for the licensure and development of a Sencera patent pending
plasma source for use in the manufacture of deposited thin-film solar cells.
Under the terms of the agreement, XsunX and Sencera entered into a Technology
Development and License Agreement, providing for a phased program to further
develop and proof the Sencera plasma source for use in the manufacture of
deposited thin-film solar cells. In connection with the agreement, Sencera
issued XsunX a seven (7) year royalty based license that provides XsunX with
exclusivity in the area of the XsunX field of use as claimed in U.S. Patent
No.
6,180,871; 6,320,117; 6,509,204; 6,488,777; 6,258,408; 6,472,622; and (b) as
claimed in U.S. Provisional Application No. 60/536,151; and (c) for use in
semi-transparent photovoltaic devices, multi-terminal photovoltaic devices,
and
cassette-based roll-to-roll manufacturing equipment.
The
Company continues to develop additional processes, techniques, and device
designs. These research and development efforts may provide the Company with
additional proprietary technology that may lead to the filing of new provisional
and patent applications.
Company
History
XsunX
is
a Colorado corporation formerly known as Sun River Mining Inc. (“Sun River”).
The Company was originally incorporated in Colorado on February 25, 1997.
Effective September 24, 2003, the Company completed a Plan of Reorganization
and
Asset Purchase Agreement (the “Plan”).
Pursuant
to the Plan, the Company acquired the following three patents from Xoptix,
Inc.,
a California corporation for Seventy Million (70,000,000) shares of common
stock
(post reverse split one for twenty): No. 6,180,871 for Transparent Solar Cell
and Method of Fabrication (Device), granted on January 30, 2001; No. 6,320,117
for Transparent Solar Cell and Method of Fabrication (Method of Fabrication),
granted on November 20, 2001; and No. 6,509,204 for Transparent Solar Cell
and
Method of Fabrication (formed with a Schottky barrier diode and method of its
manufacture), granted on January 21, 2003.
Pursuant
to the Plan, the Company authorized the issuance of 110,530,000 (post reverse
split) common shares. Prior to the Plan the Company had no tangible assets
and
insignificant liabilities. Subsequent to the Plan, the Company completed its
name change from Sun River Mining, Inc. to XsunX, Inc. The transaction was
completed on September 30, 2003.
Government
Contracts
There
are
no government contracts at this time.
Competitive
Conditions
Currently,
management is aware of other amorphous silicon and thin film products similar
to
those proposed for manufacture by us on the market. Although similar in respect
to the operation and use of these technologies, the Company believes the design
of our large area TFPV solar module delivering 125 watts of DC power provides
marketable improvements over other thin film products offering less total power
output per module technologies. We believe our design will require fewer TFPV
solar panels per installation compared to the use of other thin film systems,
thereby reducing the overall costs associated with mounting, installation,
wiring, and interconnection of fewer parts and pieces.
However,
a number of solar cell technologies have and are being developed by other
companies. Such technologies include amorphous silicon, cadmium telluride,
copper-indium-gallium-selenide (CIGS), and copper indium diselenide as well
as
advanced concepts in thin film crystalline silicon, and the use of organic
materials. Given the benefit of time, investment, and advances in manufacturing
technologies any of these competing technologies may be offered in formats
delivering power similar or greater to our design, and they may also achieve
manufacturing costs per watt lower than our cost per watt to manufacture a
TFPV
solar module.
In
accessing the principal competitive factors in the market for solar electric
power products, we use price per watt, stability and reliability, conversion
efficiency, diversity in use applications, and other performance metrics such
as
scalability of manufacturing processes and the ability to adapt new technologies
into cell designs and the manufacturing process without antiquation of existing
infrastructure. If we do not compete successfully with respect to these or
other
factors, it could materially and adversely affect our business, results of
operations, and financial condition.
A
number
of large companies are actively engaged in the development, manufacturing and
marketing of solar electric power products. The five largest TFPV cell suppliers
are Q-Cells Shell Solar, Sharp Corporation, BP Solar, Kyocera Corporation,
First
Solar, and Energy Conversion Devices, which together supply the significant
portion of the current TFPV market. All of these companies have greater
resources to devote to research, development, manufacturing and marketing than
we do.
Other
competitive factors lie in the current use of other clean, renewable energy
technologies such as wind, ocean thermal, ocean tidal, and geo-thermal power
sources and conventional fossil fuel based technologies for the production
of
electricity. We expect our primary competition will be within the solar cell
marketplace itself. Barriers to entering the solar cell manufacturing industry
include the technical know-how required to produce solar cells that maintain
acceptable efficiency rates, the design of efficient and scalable manufacturing
processes, and access to necessary manufacturing infrastructure.
Compliance
with Environmental Laws and Regulations
The
operations of the Company are subject to local, state and federal laws and
regulations governing environmental quality and pollution control. To date,
compliance with these regulations by the Company has had no material effect
on
the Company’s operations, capital, earnings, or competitive position, and the
cost of such compliance has not been material. The Company is unable to assess
or predict at this time what effect additional regulations or legislation could
have on its activities.
Employees
and Consultants
The
Company is a development stage company and as of September 30, 2007 had 6
salaried employees. This represents an increase of 1 employee over the same
period ended 2006. The Company also engages several consultants to perform
specific functions that otherwise would require an employee. The Company
projects that during the next 12 months the Company’s workforce is likely to
increase to 22, with 2 of the new employees being in Administrative, 2 in
Marketing and Sales positions, 5 Scientific and Technical positions, 4 in
Manufacturing Technicians, and 3 in Administrative Support. In addition to
the
anticipated retention of new employees the Company expects to expand its use
of
strategic relationships to leverage industry expertise in areas of design,
systems automation, manufacturing and assembly to augment product
commercialization time lines and the delivery of technologies. The Company
may
find a need to engage additional full-time employees as necessary.
Scientific
Advisory Board
In
September 2004 the Company established the XsunX Scientific Advisory Board
to
attract qualified specialists from the fields of material and device
engineering. During the fiscal year 2007, the membership of the advisory board
was enhanced to reflect the current operational status of the Company. It is
anticipated that panel members will be engaged for a period of two years. The
qualifications and biographical information for the members of the panel are
as
follows:
Dr.
John J. Moore — Chairman Scientific Advisory Board
Dr.
John
J. Moore is a Materials Scientist who currently holds the position of Trustees’
Professor and Head of Department of Metallurgical and Materials Engineering
at
the Colorado School of Mines. Dr. Moore is also Director of the
interdisciplinary graduate program in Materials Science and Director of the
Advanced Coatings and Surface Engineering Laboratory, ACSEL, at the Colorado
School of Mines in Golden. He has been at the Colorado School of Mines since
1989.
Dr.
Moore
was awarded a B.Sc. in Materials Science and Engineering from the University
of
Surrey, UK, in 1966, a Ph.D. in Industrial Metallurgy from the University of
Birmingham, UK, in 1969, and a D.Eng. from the School of Materials of the
University of Birmingham, UK, in 1996. Dr. Moore worked as a Student Apprentice
at Stewarts and Lloyds Ltd., UK, from 1962 to 1966, and as Manager of Industrial
Engineering and Production Control at Birmid-Qualcast Industries Ltd., UK,
the
largest die casters in Europe at the time, from 1969 to 1974.
Prior
to
his appointment at the Colorado School of Mines, Dr. Moore served as Professor
& Head, Department of Chemical and Materials Engineering, University of
Auckland, New Zealand, from 1986 to 1989; Professor of Metallurgical Engineering
at the University of Minnesota, USA, from 1979 to 1986, and Senior Lecturer
of
Chemical Metallurgy at Sandwell College, England, from 1974 to 1979.
Dr.
Moore
has published more than 500 papers in materials science and engineering
journals, holds 13 patents, and has been the author or co-auth or editor of
9
books. Dr. Moore is a Fellow of the Institute of Materials (UK), a Fellow ASM
International, a Fellow of the American Ceramic Society, and a Chartered
Engineer, (C.Eng.), in the UK. Dr. Moore is also an Honorary Professor and
has
been awarded an Honorary Doctorate from the Moscow State Institute of Steels
and
Alloys, Russia.
Dr.
Richard K. Ahrenkiel, Member Scientific Advisory Board
Richard
K. Ahrenkiel is currently a Research Professor of Metallurgical and Materials
Engineering at the Colorado School of Mines in Golden, Colorado. He is also
a
Consultant and Research Fellow Emeritus at the National Renewable Energy
Laboratory (NREL), (formerly the Solar Energy Research Institute) Golden,
Colorado,
where he worked from 1981 to 2005. He became a Research Fellow at NREL in 2000.
His area of specialization is the measurement and characterization of
photovoltaic cells and materials. He also works in photovoltaic device design
and modeling. He received a B.S. degree in Engineering Physics and the M.S.
and
Ph.D degrees in Physics at the University of Illinois, Urbana. He joined the
staff of the Research Laboratories of the Eastman Kodak Company. From 1972-76,
he worked on the newly founded electronic photography project using silicon
charge coupled devices as sensing elements. He joined Laser Division of the
Los
Alamos National Laboratory in 1976 (then LASL), and in 1978, he became a Group
Leader in the Electronics Division of LANL. He is a Fellow of the American
Physical Society, the Institute of Electrical and Electronic Engineers (IEEE),
the American Vacuum Society, and the Optical Society of America.
Edward
T. Yu, Member Scientific Advisory Board
Edward
T.
Yu is currently Professor of Electrical and Computer Engineering at the
University of California, San Diego (UCSD). He received his A.B. (summa cum
laude) and A.M. degrees in Physics from Harvard University in 1986, and his
Ph.D. degree in Applied Physics from the California Institute of Technology
in
1991. From 1986 to 1989 he was a National Science Foundation Doctoral Fellow,
and from 1989 to 1991 he was an AT&T Bell Laboratories Ph.D. Scholar,
holding both appointments at Caltech. From 1991 to 1992 he was a Postdoctoral
Fellow at the IBM Thomas J. Watson Research Center in Yorktown Heights, NY.
From
1992 to 1996 he was Assistant Professor of Electrical and Computer Engineering
at UCSD, and from 1996 to 1998 he was Associate Professor. He has held his
current appointment as Professor since 1998. Dr. Yu also serves currently as
a
member of the DARPA Defense Sciences Research Council.
At
UCSD
Professor Yu directs a research laboratory concerned generally with the
characterization, understanding, and application of physical phenomena and
of
solid-state material and device properties at nanometer to atomic length scales.
Current research interests in his group include III-V nitride heterostructure
materials and device physics; scanning probe characterization of advanced
electronic materials and devices; solid-state nanoscience and nanotechnology;
and photovoltaics and other technologies for energy generation. The results
of
his research have been reported in over 120 refereed journal publications and
over 175 conference and seminar presentations.
Dr.
Michael A. Russak, Member Scientific Advisory Board
Dr.
Michael A. Russak has been working as a consultant in the hard disk drive and
photovoltaic industries since Jan 2007. He is also currently the Executive
Director of IDEMA-U.S. (the hard disk drive industry trade association) and
a
member of the Board of Directors and Scientific Advisory Board of XsunX, Inc.
From 2001 to 2006 he was President and Chief Technical Officer of Komag, Inc.,
a
manufacturer of hard magnetic recording disks for hard disk drive applications.
From 1993 to 2001 he was Chief Technical Officer of HMT Technology, Inc. also
a
manufacturer of magnetic recording disks. From 1985 to 1993 he was a research
staff member and program manager in the Research Division of the IBM
Corporation. Dr. Russak has over thirty five years of industrial experience
progressing from a research scientist to senior executive officer of two public
companies. He has expertise in thin film materials and devices for magnetic
recording, photovoltaic, solar thermal applications, semiconductor devices
as
well as glass, glass-ceramic and ceramic materials. He also has over twelve
years experience at the executive management level of public companies with
significant off shore development and manufacturing functions. He received
his
B.S. in Ceramic Engineering in 1968 and Ph.D. in Materials Science in 1971,
both
from Rutgers University in New Brunswick, NJ. During his career, he has been
a
contributing scientist and program manager at the Grumman Aerospace Corporation,
a Research Staff Member and technical manager in the areas of thin film
materials and processes at the Research Division of the IBM Corporation at
the
T.J. Watson Research Laboratories. In 1993, he joined HMT Technology, a
manufacturer of thin film disks for magnetic storage, as Vice President of
Research and Development. His responsibilities included new product design
and
introduction. Dr. Russak became Chief Technical Officer of HMT and held that
position until 2000 when HMT merged with Komag Inc. Dr. Russak was appointed
President and Chief Technical Officer of the combined company. He continued
to
set technical, operational and business direction for Komag until his retirement
at the end of 2006. He has published over 90 technical papers, and holds 23
U.S.
patents.
Available
Information
Our
website address is www.xsunx.com. We make available on our website access to
our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on
Form 8-K and amendments to these reports that we have filed with the Securities
and Exchange Commission (“SEC”). The information found on our website is not
part of this or any other report we file with, or furnish to, the SEC.
Item
1A. Risk Factors
An
investment in our stock involves a high degree of risk. You should carefully
consider the following risk factors, as well as the other information in this
Annual Report on Form 10-K, in evaluating XsunX and our business. If any of
the
following risks occur, our business, financial condition and results of
operations could be materially and adversely affected. Accordingly, the trading
price of our common stock could decline and you may lose all or part of your
investment in our common stock. The risks and uncertainties described below
are
not the only ones we face. Additional risks that we currently do not know about
or that we currently believe to be immaterial may also impair our business
operations.
We
have not generated any significant revenues and may never achieve profitability.
We
are a
development stage company and, to date, have not generated any significant
revenues. From inception through September 30, 2007, we had an accumulated
deficit of $10,197,938. We cannot assure you that we can achieve or sustain
profitability in the future. Our operations are subject to the risks and
competition inherent in the establishment of a business enterprise. There can
be
no assurance that future operations will be profitable. Revenues and profits,
if
any, will depend upon various factors, including whether our product development
can be completed, and if it will achieve market acceptance. We may not achieve
our business objectives and the failure to achieve such goals would have an
adverse impact on us.
We
expect that we will need to obtain significant additional financing to continue
to operate our business, including significant capital expenditures to install
our initial 25MW per annum production capacity, and financing may be unavailable
or available only on disadvantageous terms.
We
have
in the past experienced substantial losses and negative cash flow from
operations and have required financing, including equity and debt financing,
in
order to pursue the commercialization of products based on our technologies.
We
expect that we will continue to need significant financing to operate our
business, including capital expenditures to install our planned production
capacity.
On
November 1, 2007, XsunX signed a $21 million common stock purchase agreement
with Fusion Capital Fund II, LLC, an Illinois limited liability Company (“Fusion
Capital”). Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. The shares were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
Concurrently with entering into the common stock purchase agreement, we entered
into a registration rights agreement with Fusion Capital. Under the registration
rights agreement, we agreed to file a registration statement related to the
transaction with the U.S. Securities & Exchange Commission (“SEC”) covering
the shares that have been issued or may be issued to Fusion Capital under the
common stock purchase agreement. After the SEC has declared effective the
registration statement related to the transaction we have the right over a
25-month period to sell our shares of common stock to Fusion Capital, from
time
to time, in amounts up to $1 million per sale, depending on certain conditions
as set forth in the agreement, up to the full aggregate commitment of $21
million. See Item 9B: Other Information, “Sale of Unregistered Securities and
Financing Agreement”.
There
can
be no assurance that such additional financing will be available or that the
terms of such additional financing, if available, will be acceptable to us.
If
additional financing is not available or not available on terms acceptable
to
us, our ability to fund our operations, develop and install or expand our
manufacturing operations and sales network, maintain our research and
development efforts or otherwise respond to competitive pressures may be
significantly impaired.
We
are working to establish our manufacturing capacity for TFPV products in order
to meet anticipated demand, and our revenues and profits will depend upon our
ability to successfully complete our initial 25MW of manufacturing capacity
and
then to sell our TFPV products at volumes to match our available production
capacity.
We
are
working to establish initial manufacturing capacity of 25MW per annum and plan
to expand manufacturing capacity to 100MW per annum by 2010. This plan includes
adding a new facility in Oregon. We will be installing and testing the equipment
for this manufacturing facility internally and through third parties. We may
experience delays, additional or unexpected costs and other adverse events
in
connection with our projects, including those associated with the equipment
we
purchase from third parties. Additionally, there can be no assurance that market
demand will absorb our manufacturing capacity or that our marketing capabilities
will be successful. As a result, we may not be able to realize revenues and
profits based upon the expected capacity, or we may experience delays or
reductions in these revenues and profits, and our business could be materially
adversely affected.
Continued
research and development efforts will be required to improve or maintain
competitiveness of our products, and there can be no assurance that such efforts
will be successful.
There
can
be no assurance that such research and development efforts will be successful
or
that we will be able to develop commercial applications for our products and
technologies. Further, the areas in which we are developing technologies and
products are characterized by rapid and significant technological change. Rapid
technological development may result in our products becoming obsolete or
noncompetitive. If future products based on our technologies cannot be developed
for manufacture and sold commercially or our products become obsolete or
noncompetitive, we may be unable to recover our investments or achieve
profitability. In addition, the commercialization schedule may be delayed if
we
experience delays in meeting development goals, if products based on our
technologies exhibit technical defects, or if we are unable to meet cost or
performance goals. In this event, potential purchasers of products based on
our
technologies may choose alternative technologies and any delays could allow
potential competitors to gain market advantages.
There
is no assurance that the market will accept our products once commercial-scale
manufacturing has been achieved.
There
can
be no assurance that products based on our technologies will be perceived as
being superior to existing products or new products being developed by competing
companies or that such products will otherwise be accepted by consumers. The
market prices for products based on our technologies may exceed the prices
of
competitive products based on existing technologies or new products based on
technologies currently under development by competitors. There can be no
assurance that the prices of products based on our technologies will be
perceived by consumers as cost-effective or that the prices of such products
will be competitive with existing products or with other new products or
technologies. If consumers do not accept products based on our technologies,
we
may be unable to recover our investments or achieve profitability.
Other
companies, many of which have greater resources than we have, may develop
competing products or technologies which cause products based on our
technologies to become noncompetitive.
We
will
be competing with firms, both domestic and foreign, that perform research and
development, as well as firms that manufacture and sell solar products. In
addition, we expect additional potential competitors to enter the markets for
solar products in the future. Some of these current and potential competitors
are among the largest industrial companies in the world with longer operating
histories, greater name recognition, access to larger customer bases,
well-established business organizations and product lines and significantly
greater resources and research and development staff and facilities. There
can
be no assurance that one or more such companies will not succeed in developing
technologies or products that will become available for commercial sale prior
to
our products, that will have performance superior to products based on our
technologies or that would otherwise render our products noncompetitive. If
we
fail to compete successfully, our business would suffer and we may lose or
be
unable to gain market share.
The
loss of strategic relationships used in the development of our products and
the
systems and components to our planned 25MW manufacturing system could impede
our
ability to complete our product and/or our initial manufacturing system and
result in a material adverse effect causing our business to suffer.
We
have
established a plan of operations under which a portion of our operations rely
on
strategic relationships with third parties, to provide systems design, assembly
and support. A loss of any of our third party relationships for any reason
could
cause us to experience difficulties in implementing our business strategy.
There
can be no assurance that we could establish other relationships of adequate
expertise in a timely manner or at all.
We
may suffer the loss of key personnel or may be unable to attract and retain
qualified personnel to maintain and expand our business.
Our
success is highly dependent on the continued services of a limited number of
skilled managers, scientists and technicians. The loss of any of these
individuals could have a material adverse effect on us. In addition, our success
will depend upon, among other factors, the recruitment and retention of
additional highly skilled and experienced management and technical personnel.
There can be no assurance that we will be able to retain existing employees
or
to attract and retain additional personnel on acceptable terms given the
competition for such personnel in industrial, academic and nonprofit research
sectors.
Raw
material costs could impact our cost of goods and our ability to successfully
develop our products and technologies.
Higher
costs for certain raw materials and commodities, principally glass, resin-based
polymers and industrial gases, as well as higher energy costs, could negatively
impact our cost of operations. While we have developed strategies to mitigate
or
partially offset the impact of higher raw material, commodity and energy costs,
there can be no assurances such measures will be successful. In addition, no
assurances can be given that the magnitude and duration of these cost increases
or any future cost increases will not have a larger adverse impact on our
profitability and consolidated financial position than currently anticipated.
As
part of our planned research and development activities, we are attempting
to
reduce costs through improved automation and substitution strategies. There
can
be no assurances that we will succeed in these future cost-reduction efforts,
which may be essential for the continued development of our competitive
presence.
Indemnification
of Officers and Directors.
The
Colorado Business Corporation Act provides for the indemnification of its
directors, officers, employees, and agents, under certain circumstances, against
attorney’s fees and other expenses incurred by them in any litigation to which
they become a party arising from their association with or activities on behalf
of the Company. The Company will also bear the expenses of such litigation
for
any of its directors, officers, employees, or agents, upon such person’s promise
to repay the Company therefore if it is ultimately determined that any such
person shall not have been entitled to indemnification. This indemnification
policy could result in substantial expenditures by the Company which it will
be
unable to recoup.
Director’s
Liability Limited.
The
Colorado Business Corporation Act excludes personal liability of its directors
to the Company and its stockholders for monetary damages for breach of fiduciary
duty except in certain specified circumstances. Accordingly, the Company will
have a much more limited right of action against its directors than otherwise
would be the case. This provision does not affect the liability of any director
under federal or applicable state securities laws.
Effective
Internal Controls.
As
a
public company, we are required to document and test our internal control
procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act, which will require annual management assessments of the
effectiveness of our internal control over financial reporting and a report
by
our independent registered public accounting firm that both addresses
management’s assessment of the effectiveness of internal control over financial
reporting and the effectiveness of internal control over financial reporting.
During the course of our testing, we may identify deficiencies which we may
not
be able to remediate in time to meet our deadline for compliance with Section
404. Testing and maintaining internal controls can divert our management’s
attention from other matters that are important to our business. We also expect
the new regulations to increase our legal and financial compliance cost, make
it
more difficult to attract and retain qualified officers and members of our
board
of directors (particularly to serve on an audit committee) and make some
activities more difficult, time consuming and costly. We may not be able to
conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Our independent registered
public accounting firm may not be able or willing to issue an unqualified report
on the effectiveness of our internal control over financial reporting. If we
conclude that our internal control over financial reporting is not effective,
we
cannot be certain as to the timing of completion of our evaluation, testing
and
remediation actions or their effect on our operations since there is presently
no precedent available by which to measure compliance adequacy. If we are unable
to conclude that we have effective internal control over financial reporting
or
our independent auditors are unable to provide us with an unqualified report
as
required by Section 404, then we may be unable to continue to have our common
stock traded on the Over the Counter Bulletin Board and investors could lose
confidence in our reported financial information, which could have a negative
effect on the trading price of our stock.
The
following risks relate principally to our common stock and its market value:
Our
Common Stock is deemed a low-priced “Penny” stock, therefore an investment in
our Common Stock should be considered high risk and subject to marketability
restrictions.
Since
our
Common Stock is a penny stock, as defined in Rule 3a51-1 under the Exchange
Act,
it will be more difficult for investors to liquidate their investment. Until
the
trading price of the Common Stock rises above $5.00 per share, if ever, trading
in our Common Stock is subject to the penny stock rules of the Exchange Act
specified in rules 15g-1 through 15g-10. Those rules require broker-dealers,
before effecting transactions in any penny stock, to:
|
•
|
Deliver
to the customer, and obtain a written receipt for, a disclosure document;
|
|
•
|
Disclose
certain price information about the stock;
|
|
•
|
Disclose
the amount of compensation received by the broker-dealer or any associated
person of the broker-dealer;
|
|
•
|
Send
monthly statements to customers with market and price information
about
the penny stock; and
|
|
•
|
In
some circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with information
specified in the rules.
|
Consequently,
the penny stock rules may restrict the ability or willingness of broker-dealers
to sell our Common Stock and may affect the ability of holders to sell their
Common Stock in the secondary market and the price at which such holders can
sell any such securities. These additional procedures could also limit our
ability to raise additional capital in the future.
No
Foreseeable Dividends.
We
have never paid cash dividends on our common stock and do not anticipate paying
cash dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
Limited
Public Market
. There
is only a limited public market for the Company’s common stock, and no assurance
can be given that a market will continue or that a shareholder ever will be
able
to liquidate his investment without considerable delay, if at all. If a market
should continue, the price may be highly volatile. Factors such as those
discussed in this “Risk Factors” section may have a significant impact upon the
market price of the securities offered hereby. Due to the low price of the
securities, many brokerage firms may not be willing to effect transactions
in
the securities. Even if a purchaser finds a broker willing to effect a
transaction in these securities, the combination of brokerage commissions,
state
transfer taxes, if any, and any other selling costs may exceed the selling
price. Further, many lending institutions will not permit the use of such
securities as collateral for any loans.
Stock
Volatility.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
|
•
|
technological
innovations or new products and services by us or our competitors;
|
|
•
|
additions
or departures of key personnel;
|
|
•
|
sales
of our common stock;
|
|
•
|
our
ability to integrate operations, technology, products and services;
|
|
•
|
our
ability to execute our business plan;
|
|
•
|
operating
results below expectations;
|
|
•
|
loss
of any strategic relationship;
|
|
•
|
economic
and other external factors; and
|
|
•
|
period-to-period
fluctuations in our financial results.
|
Because
we have a limited operating history with limited revenues to date, you may
consider any one of these factors to be material. Our stock price may fluctuate
widely as a result of any of the above listed factors.
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
Item
1B. Unresolved Staff Comments
(None)
Item
2. Properties
As
of
September 30, 2007 the Company leased administrative office facilities located
at 65 Enterprise, Aliso Viejo CA 92656 for approximately $3,800 per month.
In
April
2006 the Company entered into a three year lease for technical and marketing
operations facilities in Golden, CO. The Company provided a $2,615 security
deposit and expensed $79,867 in costs associated with tenant improvements to
the
facilities in preparation for occupancy. The following is a schedule, by years,
of the minimum base payments required under this operating lease for facilities.
An additional $905 monthly is also due as a pro rata share equaling 4.12% of
the
operating costs for real estate taxes, assessments, and the expenses of
operating and maintaining common areas within the commercial grounds surrounding
the leased facilities.
Annual
Rent Schedule
|
|
Rate/sf
|
|
Annualized
Rent
|
|
Monthly Rent
|
|
7/1/06 - 6/30/07
|
|
$
|
6.75
|
|
$
|
20,250.00
|
|
$
|
1,687.50
|
|
7/1/07 - 6/30/08
|
|
$
|
6.95
|
|
$
|
20,850.00
|
|
$
|
1,737.50
|
|
7/1/08 - 6/30/09
|
|
$
|
7.16
|
|
$
|
21,480.00
|
|
$
|
1,790.00
|
|
The
Company owns no real property.
To
support the Company’s plans to prepare TFPV solar module manufacturing
capabilities, we plan to lease suitable facilities of approximately 60,000
to
75,000 square feet in the 2008 fiscal year. We have selected the area
surrounding the Portland, Oregon area as the location of our facilities and
we
are working to complete site selection and lease negotiations.
Item
3. Legal Proceedings
In
the
ordinary conduct of our business, we are subject to periodic lawsuits,
investigations and claims, including, but not limited to, routine employment
matters. Although we cannot predict with certainty the ultimate resolution
of
lawsuits, investigations and claims asserted against us, we are currently not
aware of nor have any knowledge of any legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse affect
on our business, financial condition or operating results.
Effective
March 23, 2007 XsunX entered into a binding letter of intent (“LOI”) with a
manufacturer (the “Seller”) of photovoltaic products for the purchase of certain
net assets of the manufacturer for the amount of five million dollars
($5,000,000) USD in a cash transaction. On or about April 27, 2007 the Company
was notified by the Seller of a change in direction and decision not to complete
the sale of assets under the LOI agreement. XsunX filed a complaint (“Lawsuit”)
against the Seller and related entities in the United States District Court
for
the District of Massachusetts on May 10th, 2007, alleging breach of contract
and
other claims. On August 23, 2007 the Seller and XsunX entered into a settlement
agreement (“Settlement”). The Settlement became effective upon the transfer by
the Seller to XsunX of one million one hundred thousand dollars USD ($1,100,000)
on August 27, 2007. Upon the effectiveness of the Settlement counsel for each
of
the parties filed with the United States District Court for the District of
Massachusetts a Stipulation of Dismissal with Prejudice thereby dismissing
the
Lawsuit with prejudice. Each of the parties has unconditionally and irrevocably
released, waived, and forever discharged each other from claims related to
the
LOI and the Lawsuit.
In
December 2006, the Company entered into a settlement agreement with a service
provider in which the service provider returned to the Company 150,000 of the
300,000 shares of common stock issued to the service provider in the period
ended March 31, 2005. The shares were originally issued in a transaction exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933. The
returned shares were received and cancelled effective January 2007. As a result
of the return and cancellation of these shares, the Company recorded a credit
to
expenses in the amount of $12,000 and a debit to paid in capital of $12,000
for
the period ending March 31, 2007. The $12,000 represents one half of the
monetary value expensed by the Company in the period in which the shares were
issued.
Item
4. Submission of Matters to a Vote of Security Holders
None
in
the period ended September 30, 2007.
PART
II
Item
5. Market for Registrant’s Common Equity and Related Stockholder Matters and
Issuer Purchases of Equity Securities
Price
Range of Common Stock
The
Company’s common stock trades on the OTC Bulletin Board under the symbol “XSNX.”
The range of high, low and close trade quotations for the Company’s common stock
by fiscal quarter within the last two fiscal years, as reported by the National
Quotation Bureau Incorporated, was as follows:
Year
Ended September 30, 2007
|
|
High
|
|
Low
|
|
Close
|
|
First
Quarter ended December 31, 2006
|
|
|
0.68
|
|
|
0.34
|
|
|
0.38
|
|
Second
Quarter ended March 31, 2007
|
|
|
0.64
|
|
|
0.40
|
|
|
0.49
|
|
Third
Quarter ended June 30, 2007
|
|
|
0.51
|
|
|
0.41
|
|
|
0.42
|
|
Fourth
Quarter ended September 30, 2007
|
|
|
0.44
|
|
|
0.30
|
|
|
0.39
|
|
Year
Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
First
Quarter ended December 31, 2005
|
|
|
0.59
|
|
|
0.53
|
|
|
0.58
|
|
Second
Quarter ended March 31, 2006
|
|
|
2.24
|
|
|
2.08
|
|
|
2.13
|
|
Third
Quarter ended June 30, 2006
|
|
|
1.06
|
|
|
1.04
|
|
|
1.05
|
|
Fourth
Quarter ended September 30, 2006
|
|
|
0.55
|
|
|
0.52
|
|
|
0.54
|
|
The
above
quotations reflect inter-dealer prices, without retail mark-up, mark-down,
or
commission and may not necessarily represent actual transactions.
Number
of Holders
As
of
September 30, 2007, there were approximately 1,456 record holders of the
Company’s common stock, not counting shares held in “street name” in brokerage
accounts which is unknown. As of September 30, 2007, there were approximately
157,919,858 shares of common stock outstanding on record with the Company’s
stock transfer agent, Mountain Share Transfer. On September 30, 2007 the last
reported sales price of our common stock on the OTCBB was $.39 per share.
Dividends
The
Company has not declared or paid any cash dividends on its common stock and
does
not anticipate paying dividends for the foreseeable future.
Stock
Option Plan
On
January 5, 2007, the Board of Directors of XsunX resolved to establish the
Company’s 2007 Stock Option Plan to enable the Company to obtain and retain the
services of the types of employees, consultants and directors who could
contribute to the Company’s long range success and to provide incentives which
are linked directly to increases in share value which will inure to the benefit
of all stockholders of the Company. A total of 20,000,000 shares of common
stock
are authorized under the plan.
Stock
Compensation, Issuance of Stock Purchase Options
During
the fiscal year ended September 30, 2007, the board of directors authorized
the
grant of options to purchase an aggregate of 2,200,000 shares of the Company’s
common stock of which 1,950,000 remain authorized. The options are exercisable
at prices ranging from $.41 to $.53 per share, and expire at various times
through August 2012.
Consulting
Incentive Options: In connection with entering into a Consulting and Advisory
Agreement effective January 26, 2007 with Dr. John Moore for two years service
as Chairman of the Company’s Scientific Advisory Board, the Company issued to
Dr. Moore 150,000 options under the terms of a Stock Option Agreement, with
an
exercise price of $.46 per share. The options were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of April 26, 2007. Thereafter, the Option shall vest
become
exercisable at the rate of 18,750 Shares per calendar quarter, or
any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Jeff Huitt for two years service as
Chief Financial Officer, the Company issued to Mr. Huitt 500,000 options under
the terms of a Stock Option Agreement effective January 26, 2007, with an
exercise price of $.46 per share. The options were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Robert Wendt for two years service
as
Vice President of Engineering, the Company issued to Mr. Wendt 500,000 options
under the terms of a Stock Option Agreement effective January 26, 2007, with
an
exercise price of $.46 per share. The options were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Kurt Laetz for two years service as
Vice President of Sales, the Company issued to Mr. Laetz 250,000 options under
the terms of a Stock Option Agreement effective January 26, 2007, with an
exercise price of $.46 per share. The options were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
As of September 30, 2007 Mr. Laetz no longer worked for the Company and the
above referenced option grant was terminated and the available options were
returned to the pool of available options under the XsunX 2007 Stock Option
Plan.
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Joseph Grimes for two years service
as
Chief Operating Officer, the Company issued to Mr. Grimes 500,000 options under
the terms of a Stock Option Agreement effective January 26, 2007, with an
exercise price of $.46 per share. The options were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective February 22, 2007 with Dr. Edward Yu for two years service
as a member of the Company’s Scientific Advisory Board, the Company issued to
Dr. Yu 100,000 options under the terms of a Stock Option Agreement, with an
exercise price of $.53 per share. The options were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
The options have a 5 year exercise term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of May 23, 2007. Thereafter, the Option shall vest become
exercisable at the rate of 12,500 Shares per calendar quarter, or
any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective April 23, 2007 with Dr. Richard Ahrenkiel for two years
service as a member of the Company’s Scientific Advisory Board, the Company
issued to Dr. Yu 100,000 options under the terms of a Stock Option Agreement,
with an exercise price of $.45 per share. The options were issued in a
transaction exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933. The options have a 5 year exercise term and vest under the
following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of July 24, 2007. Thereafter, the Option shall vest
become
exercisable at the rate of 12,500 Shares per calendar quarter, or
any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective August 28, 2007 with Dr. Michael Russak for two years
service as a member of the Company’s Scientific Advisory Board, the Company
issued to Dr. Russak 100,000 options under the terms of a Stock Option
Agreement, with an exercise price of $.41 per share. The options were issued
in
a transaction exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. The options have a 5 year exercise term and vest under
the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of November 29, 2007. Thereafter, the Option shall vest
become exercisable at the rate of 12,500 Shares per calendar quarter,
or
any apportioned amount thereof, during the term of engagement of
the
Optionee by XsunX.
|
Table
of Equity Compensation
The
following table sets forth summary information, as of September 30, 2007,
concerning securities authorized for issuance under all equity compensation
plans and agreements for the fiscal years ended September 30, 2005, 2006 and
2007 is as follows:
|
|
Number
of
Options/
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
Accrued
Options/
Warrants
Exercisable
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding,
September 30, 2004
|
|
|
8,000,000
|
|
$
|
0.15
|
|
|
5,500,000
|
|
$
|
0.15
|
|
Granted
2005
|
|
|
7,125,000
|
|
$
|
0.17
|
|
|
6,708,334
|
|
$
|
0.17
|
|
Exercisable
from 2004 in 2005
|
|
|
—
|
|
|
|
|
|
1,200,000
|
|
|
0.15
|
|
Outstanding,
September 30, 2005
|
|
|
15,125,000
|
|
$
|
0.16
|
|
|
13,408,334
|
|
$
|
0.16
|
|
Granted
2006
|
|
|
11,987,000
|
|
$
|
0.36
|
|
|
5,543,000
|
|
$
|
0.46
|
|
Exercised
2006
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
Exercised
from 2004 in 2006
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2006
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
Exercisable
from 2004 in 2006
|
|
|
—
|
|
|
|
|
|
300,000
|
|
$
|
0.15
|
|
Exercisable
from 2005 in 2006
|
|
|
—
|
|
|
|
|
|
300,000
|
|
$
|
0.20
|
|
Outstanding,
September 30, 2006
|
|
|
16,262,000
|
|
|
|
|
|
8,701,334
|
|
|
|
|
Granted
2007
|
|
|
1,950,000
|
|
$
|
0.46
|
|
|
554,167
|
|
$
|
0.46
|
|
Exercised
2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Exercised
from 2004 in 2007
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Number
of
Options/
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
Accrued
Options/
Warrants
Exercisable
|
|
Weighted-
Average
Exercise
Price
|
|
Exercised
from 2006 in 2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Exercisable
from 2004 in 2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Exercisable
from 2005 in 2007
|
|
|
—
|
|
|
|
|
|
116,666
|
|
$
|
0.20
|
|
Exercisable
from 2006 in 2007
|
|
|
—
|
|
|
|
|
|
296,000
|
|
$
|
0.51
|
|
Outstanding,
September 30, 2007
|
|
|
17,312,000
|
|
$
|
0.33
|
|
|
8,768,167
|
|
$
|
0.22
|
|
At
September 30, 2007, the range of warrant/option prices for shares under
warrants/options not exercised and the weighted-average remaining contractual
life is as follows:
|
|
Options/Warrants
Outstanding
|
|
Options/Warrants
Exercisable
|
|
Range
of
Option/
Warrant
Prices
|
|
Number
of
Options/
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Life
(yr)
|
|
Number
of
Options/
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
$
0.15
|
|
|
7,000,000
|
|
$
|
0.15
|
|
|
1.9
|
|
|
6,000,000
|
|
$
|
0.15
|
|
$
0.20
|
|
|
750,000
|
|
$
|
0.20
|
|
|
0.3
|
|
|
750,000
|
|
$
|
0.20
|
|
$
0.25
|
|
|
7,000,000
|
|
$
|
0.25
|
|
|
3.0
|
|
|
1,000,000
|
|
$
|
0.25
|
|
$
0.41
|
|
|
100,000
|
|
$
|
0.41
|
|
|
4.9
|
|
|
4,167
|
|
$
|
0.41
|
|
$
0.45
|
|
|
100,000
|
|
$
|
0.45
|
|
|
4.6
|
|
|
20,833
|
|
$
|
0.45
|
|
$
0.46
|
|
|
1,650,000
|
|
$
|
0.46
|
|
|
4.3
|
|
|
500,000
|
|
$
|
0.46
|
|
$
0.51
|
|
|
500,000
|
|
$
|
0.51
|
|
|
3.8
|
|
|
352,000
|
|
$
|
0.51
|
|
$
0.53
|
|
|
100,000
|
|
$
|
0.53
|
|
|
4.4
|
|
|
29,167
|
|
$
|
0.53
|
|
$
1.69
|
|
|
112,000
|
|
$
|
1.69
|
|
|
3.5
|
|
|
112,000
|
|
$
|
1.69
|
|
|
|
|
17,312,000
|
|
|
|
|
|
|
|
|
8,768,167
|
|
|
|
|
Sales
or Transactions of Securities
The
authorized capital stock of the Company was established at 500,000,000 shares
with no par value.
In
the
fiscal year ended September 30, 2005, the Company issued a total of 9,818,631
shares of common stock as follows: 6,735,137 shares of common stock were issued
pursuant to Regulation S promulgated under the Securities Act, raising gross
proceeds of $531,396; 474,231 shares of common stock were issued in transactions
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933,
for consulting services valued at $40,000; and 2,609,263 shares of common stock
were issued pursuant to an exemption under Section 4(2) of the Act, in
connection with the sale of an $850,000 secured convertible debenture by the
Company.
In
the
fiscal year ended September 30, 2006, the Company issued a total of 33,293,217
shares of common stock as follows: 33,120,851 shares of common stock registered
pursuant to an effective registration statement were issued pursuant to the
conversion of secured convertible debentures, raising gross proceeds of
$9,294,133; 72,366 shares of common stock were issued in transactions exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, for
consulting services valued at $31,500; and 100,000 shares of common stock were
issued pursuant to an exemption under Section 4(2) of the Act, in connection
with the exercise of 100,000 warrants bearing an exercise price of $.15 each.
The
following represents a detailed analysis of the 2007 capital stock transactions.
In
December 2006, the Company entered into a settlement agreement with a service
provider in which the service provider returned to the Company 150,000 of the
300,000 shares of common stock issued to the service provider in the period
ended March 31, 2005. The shares were originally issued in a transaction exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933. The
returned shares were received and cancelled effective January 2007. As a result
of the return and cancellation of these shares, the Company recorded a credit
to
expenses in the amount of $12,000 and a debit to paid in capital of $12,000
for
the period ending March 31, 2007. The $12,000 represents one half of the
monetary value expensed by the Company in the period in which the shares were
issued.
In
conjunction with the sale of convertible debentures in the amount of $850,000
and $5,000,000 in the fiscal periods ended December 31, 2005 and 2006
respectively, the Company issued and deposited into escrow 26,798,418 shares
of
common stock as part of a security structure for the above referenced
obligations. As of September 30, 2006 the principal balance of the debentures
had been reduced to $0.0. Subsequently the holder of the debentures provided
the
Company with a notice of release of its security interests and returned the
security shares to the Company for cancellation. On January 18, 2007 the above
shares were cancelled on the Company’s books.
Warrant
Conversion — In September 2007, a consultant exercised the remaining
900,000 of the 1,000,000 $.15 cent warrants granted to the consultant in
September 2004. The amount of $135,000 dollars was paid to XsunX by the
consultant and 900,000 shares of unregistered common stock were issued. The
shares were issued in a transaction exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
Use
of Proceeds from the Sale of Securities
The
proceeds from the above sales of securities are used primarily to fund the
product developments efforts and day-to-day operations of the Company and to
pay
the accrued liabilities associated with these operations.
Item
6. Selected Financial Data
The
following table below sets forth certain financial information derived from
the
Company’s audited consolidated financial statements for the periods and at the
dates indicated.
In
2003,
the Company completed a Plan of Reorganization and Asset Purchase Agreement
and
changed the name of the Company from Sun River Mining, Inc. to XsunX, Inc.
Due
to the Company’s change in primary focus in October of 2003 and the developing
nature of the business opportunities, these historical results may not
necessarily be indicative of results to be expected for any future period.
As
such, future results of the Company may differ significantly from previous
periods. The historical trends reflect this change of primary focus and the
associated research and development period of the development stage company.
This change in primary focus is the largest factor in the comparability of
this
information over time.
The
information presented below should be read in conjunction with “Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and the related notes.
|
|
Years
Ended
|
|
|
|
Sept
30,
2007
|
|
Sept
30,
2006
|
|
Sept
30,
2005
|
|
Sept
30,
2004
|
|
Sept
30,
2003
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
6,880
|
|
|
8,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Research
and Development Expense
|
|
|
435,534
|
|
|
949,472
|
|
|
501,423
|
|
|
129,493
|
|
|
—
|
|
Loan
Fees
|
|
|
—
|
|
|
628,834
|
|
|
115,000
|
|
|
—
|
|
|
—
|
|
Warrant
Expenses
|
|
|
325,303
|
|
|
951,250
|
|
|
—
|
|
|
1,200,000
|
|
|
—
|
|
Income(Loss)
from Continuing Operations
|
|
|
(1,289,497
|
)
|
|
(3,441,940
|
)
|
|
(1,400,839
|
)
|
|
(1,509,068
|
)
|
|
(145,868
|
)
|
Income(Loss)
from Continuing Operations per Common
Share
|
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
Cash
Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(843,416
|
)
|
|
(1,942,278
|
)
|
|
(1,049,650
|
)
|
|
(236,630
|
)
|
|
(27,372
|
)
|
|
|
Years
Ended
|
|
|
|
Sept
30,
2007
|
|
Sept
30,
2006
|
|
Sept
30,
2005
|
|
Sept
30,
2004
|
|
Sept
30,
2003
|
|
Net
cash used in investing activities
|
|
|
(1,822,942
|
)
|
|
(2,099,736
|
)
|
|
(191,995
|
)
|
|
(12,267
|
)
|
|
(3
|
)
|
Net
cash provided by financing activities
|
|
|
135,000
|
|
|
8,171,250
|
|
|
1,380,170
|
|
|
1,483,895
|
|
|
29,721
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1,773,748
|
|
|
4,305,105
|
|
|
175,869
|
|
|
37,344
|
|
|
2,346
|
|
Property
Plant and Equipment, Net
|
|
|
499,868
|
|
|
397,626
|
|
|
165,831
|
|
|
2,270
|
|
|
—
|
|
Note
Receivable
|
|
|
1,500,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Marketable
Prototype
|
|
|
1,765,000
|
|
|
1,765,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
Assets
|
|
|
5,742,260
|
|
|
6,859,464
|
|
|
441,684
|
|
|
72,114
|
|
|
2,349
|
|
Accounts
Payable
|
|
|
259,652
|
|
|
582,161
|
|
|
78,377
|
|
|
89,030
|
|
|
—
|
|
Note
Payable
|
|
|
—
|
|
|
—
|
|
|
850,000
|
|
|
1,225
|
|
|
—
|
|
Total
Liabilities
|
|
|
312,688
|
|
|
588,699
|
|
|
974,233
|
|
|
96,163
|
|
|
—
|
|
Total
Stockholders Equity
(Deficit)
|
|
|
5,429,572
|
|
|
6,270,765
|
|
|
(532,549
|
)
|
|
(24,049
|
)
|
|
2,349
|
|
Long
Term Obligations
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash
Dividends Declared per Common Share
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Item
7. Management’s Discussion and Analysis or Plan of Operations
Cautionary
and Forward-Looking Statements
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this Annual Report on
Form 10-K. In addition to historical consolidated financial information, the
following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions as described under the “Cautionary
Note Regarding Forward-Looking Statements” that appears earlier in this Annual
Report on Form 10-K. Our actual results could differ materially from those
anticipated by these forward-looking statements as a result of many factors,
including those discussed under “Item 1A: Risk Factors” and elsewhere in this
Annual Report on Form 10-K.
The
Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-Q and Annual Report on Form 10-K
filed by the Company in 2006 and Form 10-KSB in 2005 and any Current Reports
on
Form 8-K filed by the Company.
Business
Overview
XsunX
is
a thin-film photovoltaic (“TFPV”) company that intends to grow its business by
manufacturing TFPV amorphous solar modules and selling them into what we believe
is a high growth solar market opportunity. Our decision to pursue this strategy
is based on our three years of research in the design and use of technologies
for the manufacture of TFPV solar cells utilizing amorphous silicon. During
this
time we have developed the technical capabilities, qualified core staff, and
market understanding that we believe will be necessary to establish product
manufacturing infrastructure and take our product to market.
We
have
designed a 125 peak watt TFPV solar module utilizing glass substrates and a
proprietary semiconductor manufacturing system which employs the design of
a
high-throughput, automated, continuous process to produce solar modules in
commercial quantities. We believe that these key processes can deliver per
watt
costs significantly less than those of traditional crystalline silicon solar
module manufacturers and allow us to market TFPV modules that will be highly
competitive with other thin film offerings.
Our
plan
for growth is to build and operate a TFPV solar module manufacturing facility
in
the state of Oregon. Employing a phased roll-out of manufacturing capacities
our
baseline production system is scheduled for installation in mid calendar year
2008, the installation of our first 25MW line is scheduled near the end of
calendar 2008, and the installation of our 4
th
25MW
line is scheduled for early 2010. In anticipation of commercial production,
we
have begun to market our TFPV solar module under the brand name of the XsunX
ASI-120. Furthermore, we have successfully developed and implemented a pre-sales
reservation program for system installers and large users of solar.
Markets
We
believe the solar market represents a high growth opportunity nationally and
internationally, both currently and into the foreseeable future. The global
demand for electrical energy has experienced significant growth due to growth
in
populations and the economic vitality of emerging economies. This has created
a
growing need to diversify and establish new sources of electrical production,
and we believe has created tremendous opportunities for growth in the solar
market. Within the markets for solar products we anticipate that growth in
demand for solar products based on TFPV technologies will out perform the
balance of the solar market.
Macro
growth drivers for solar energy production products include political support
and government subsidies, high energy prices, technical progress having led
to
cost reductions in manufacturing techniques, and advantages over other renewable
energy sources including:
|
•
|
Proven,
commercialized and widely used solar technologies adapting to a host
of
applications
|
|
•
|
Negligible
environmental impact
|
|
•
|
Reliability,
little or no delivery risk
|
|
•
|
Maximum
power generation coincides with peak energy demands
|
|
•
|
Potential
for distributed point of use generation
|
Growth
drivers that we believe may allow TFPV to outpace the balance of the solar
market include:
|
•
|
Highly
scalable and automated manufacturing processes
|
|
•
|
Lower
material costs and fewer constraints to sufficient material supplies
|
|
•
|
Lower
per watt production costs for solar cells and integrated solar modules
|
Driving
our solar module manufacturing plan is what we believe to be the ability to
capitalize on long term growth in solar spurred by increasing electrical energy
costs and demand. Large markets are developing for commercial operators of
private solar farms, utilities meeting green mandates, government subsidized
installations, and operators of large commercial and industrial properties.
These projects represent large installations typically approaching 1MW or more.
While
we
believe that the market conditions are excellent for all producers of solar
products, we intend to deliver thin film solar products that provide extra
value
in performance and cost.
Products
Solar
Modules
In
designing our ASI-120 watt module, we interviewed solar systems integrators
and
developed a design that we believe provides for a module delivering high power
output (relative to other thin films), and size and framing that would allow
for
the use of many existing mounting systems. In doing so, we believe our modules
strike a balance between higher rated power silicon wafer modules and lower
rated power thin film modules. Further, we believe the market will dictate
retail installed pricing. Systems integrators will look to sell installed watts
at market dictated prices, and after accounting for certain fixed installation
costs inherent to each of the different solar technologies, they will drive
pricing per watt for factory delivered modules to compensate for any added
installation costs when using certain technologies.
We
have
focused on the development of thin film amorphous technologies and products
due
to what we perceive as inherent advantages of amorphous silicon over other
solar
absorbers in regards to conversion efficiencies. Amorphous silicon produces
more
power earlier in the day and later into the evening because it requires less
incident light than many other technologies. Amorphous silicon also exhibits
less thermal coefficient degradation effects when operating in hot climates.
In
contrast, other thin film and conventional silicon wafer technologies degrade
at
significant rates of approximately 10% to 20% conversion loss of peak rated
performance when operating at normal temperatures of 65 degrees centigrade.
We
plan
to deposit two separate solar cell layers of amorphous silicon on to a glass
substrate. This is to increase the amount of absorbed and converted solar energy
in our modules. Based on previous experimental and limited commercial use of
our
thin film deposition recipes, we anticipate the finished solar module to produce
7.9% frame to frame efficiency delivering approximately 125 peak watts of direct
current “DC” power. We believe that we may be able to improve conversion
efficiencies through the use of derivative forms of amorphous and other
proprietary cell structures.
We
anticipate that we can present the superior per-rated-watt-performance of
amorphous in “real world” operating conditions as a competitive strength over
the factory-rated performance of various other solar technologies. We believe
these factors will influence the purchasing decision process of large solar
power farms and utility size installations.
Planned
Manufacturing Capacities
Production
Line Features
The
core
feature of our plan revolves around the design of an efficient mass production
system. The design utilizes an in-line vertical glass coating system processing
two balanced and independent lines simultaneously. This design incorporates
material handling, cell deposition, laser segmentation, cleaning, and module
packaging functions necessary to convert an inexpensive piece of 100cm X 160cm
sheet glass into a complete solar module in less than three hours. Our process
uses only a fraction of the semiconductor material that would be necessary
to
produce crystalline silicon solar modules.
Phased
Production Build Out and Planned Capacities
In
the
2008 calendar year, we anticipate completing the assembly and installation
of a
small scale baseline production system and initiating construction and
commissioning our first full scale 25MW system. We further anticipate that
the
baseline production system will generate limited solar module production in
2008
for use in fueling our sales channel and establish product recognition for
larger quantity sales in 2009. We anticipate completing the assembly of and
commissioning our first 25MW line between December 2008 and January 2009. Near
the end of the 2008 calendar year, we plan to launch the build-out of the first
of three additional 25MW systems necessary to eventually bring our capacity
to
100MW. Barring assembly delays, the first of these lines is slated to come
on-line in November 2009, the second in January 2010, and the final 25MW in
March 2010. We intend to use the balance of the 2010 year to continue to work
to
improve system utilization, add shifts, and increase module yields to bring
our
production to peak capacities of 100MW or more of annualized solar module
production. To complete each new production line, we plan to use a systematic
replication process that is designed to enable us to add production lines
rapidly and efficiently, and achieve operating metrics that are comparable
to
the performance of our initial 25MW system.
Production
Line Planned Utilization and Production Costs
Each
system, or line, has an estimated annualized initial module production capacity
of approximately 25 megawatts, “MW” per annum, based on an initial 58% system
utilization (the percentage of system utilization in each 7 day by 24 hour
period) and 80% yield (the percentage of product meeting saleable
specifications). We plan to ramp-up system utilization and yield to industry
standards of 80% & 85% respectively over the course of the first full year
of production in 2009, thereby increasing total production capacities per line
to an anticipated 33MW. Initial per watt production costs during ramp-up of
operations in the 2009 period are anticipated to be $1.58 per watt. As we
improve system utilization and production yield in 2009, we anticipate our
production costs will lower to $1.38 in 2010 and $1.19 in 2011. By continuing
to
expand production and improve solar energy conversion efficiencies and
manufacturing processes, we believe we can further reduce our manufacturing
costs per watt and improve our cost advantage over traditional crystalline
silicon solar module manufacturers.
Sales
and Marketing
Driving
our solar module manufacturing plan is what we believe to be the ability to
capitalize on long term growth in solar spurred by increasing electrical energy
costs and demand. Large markets are developing for commercial operators of
private solar farms, utilities meeting green mandates, government subsidized
installations, and operators of large commercial and industrial properties.
These projects represent large installations typically approaching 1MW or more.
Solar
systems installers looking to satisfy the module needs of these large and long
term projects are looking for opportunities to secure access to modules
supplies. We believe that the design and performance of our solar module is
ideally suited for use in these project types, and we further believe that
our
module production capacities can be pre-sold well into the future.
Target
Market
Our
primary target market for our TFPV solar modules will be applications for
On-Grid (facilities tied to conventional power distribution infrastructure)
application of 1MW in size and above. Typical applications and buyers would
include:
|
—
|
License
Holders in Germany, Spain & Canada
|
|
—
|
US
installers servicing commercial and utility scale installations
|
|
•
|
Government
Agencies (DOD)
|
|
—
|
Bureau
of Land Management
|
|
•
|
Power
Purchase Agreements
|
|
•
|
Large
Commercial Installations
|
Sales
& Distribution
In
anticipation of commercial production, we have developed a pre-sales reservation
program, based upon the solar module manufacturing industry’s policy of
pre-selling manufacturing capacity to system installers and large users of
solar. This is intended to aid in building a sales channel, loading that channel
with customers interested in purchasing our future module production, and
developing brand presence and recognition as early as possible. The program
enables qualified, interested parties to specify the amount of solar module
capacity they anticipate purchasing at favorable per watt pricing. As of the
date of this report, we have signed reservation agreements with solar system
integrators indicating interest in over 100MW of production in calendar 2008,
2009, 2010. Our agreements provide for the payment of a 5% deposit based on
the
2009 calendar year purchase commitment either prior to, or not later than,
30
days after the delivery by XsunX to the reserving party of commercial samples
for evaluation. The information in this paragraph is designed to summarize
the
general terms of the pre-sales reservation program and market opportunities.
It
is not intended to provide guidance about our future operating results,
including revenues or profitability.
Plan
of Operations
At
present, we anticipate the majority of our product and operations development
efforts for the period ending September 2008 and the foreseeable future
thereafter, will focus on establishing and expanding facilities necessary to
manufacture our TFPV solar modules for commercial sale. Areas of specific focus
and capital expenditures include:
|
(a)
|
Establishment
of a baseline production system to produce full size (100cm × 160cm)
sample modules; and
|
|
(b)
|
Lease
and preparation of facilities necessary to house and operate, at
minimum,
our first of four proposed 25MW manufacturing lines; and
|
|
(c)
|
The
placement of orders with select vendors for the core and sub-system
components necessary to begin assembly leading to the commissioning
of the
first of four planned 25MW manufacturing lines; and
|
|
(d)
|
Continued
R&D efforts to establish enhanced solar cell deposition methods and
reduce manufacturing costs.
|
For
the
year ending September 30, 2008 the Company has developed a plan of operations
requiring approximately $20,080,316 that commits 38% of its budget or
$12,773,974 towards initial Manufacturing Equipment and Sub-systems, another
11%
of its budget or $3,578,594 to General and Administrative functions as well
as
working capital needs, another 8% of its budget or $2,725,098 to facilities
including lease payments and manufacturing lease hold improvements and another
3% of its budget or $1,002,649 to the development of new manufacturing devices,
techniques and other research and development. The planned expenditures are
consistent with our anticipated costs associated with the placement of equipment
order deposits, ongoing progress payments, facility lease hold improvements
for
general office facilities and manufacturing sub-system infrastructure, and
operations support for an approximate annual manufacturing capacity of 25MW.
The
Company may change any or all of the budget categories in the execution of
its
business attempts. None of the items is to be considered fixed or unchangeable.
The
Company will need additional capital to fund its budget. To support the
completion of the our planned initial 25MW of manufacturing capacity, associated
production start-up costs, establish a replication process designed to enable
us
to add the balance of our proposed 75MW of additional production capacity,
and
fund operations as we attempt to generate initial sales and revenues, we may
seek to obtain additional financing of approximately $25,000,000 from equity
and/or debt placements. To support these and future operational plans, we may
elect to attempt to secure loans and/or grants offered by the State of Oregon
where we intend to establish our manufacturing facilities. No representation
is
made that any funds will be available when needed or on terms that acceptable
to
the Company. In the event funds cannot be raised when needed, the Company may
not be able to carry out its business plan, may never achieve sales or income,
and could fail in business as a result of these uncertainties.
Management
believes the summary data and audit presented herein is a fair presentation
of
the Company’s results of operations for the periods presented. Due to the
Company’s change in primary business focus and new business opportunities these
historical results may not necessarily be indicative of results to be expected
for any future period. As such, future results of the Company may differ
significantly from previous periods.
Results
of Operations for the Three Fiscal Years Ended September 30, 2007 Compared
to
Fiscal Years Ended September 30, 2006 and 2005
Revenue,
Cost of Goods Sold:
The
Company generated insignificant revenues in the period ended September 30,
2007
of $6,880. The Company generated revenue of $8,000 for the same period in 2006
and generated no revenue for the same period in 2005. There were no associated
costs of goods sold.
Operating
Expenses:
The
Company incurred expenses totaling $2,648,359 in fiscal year 2007 as compared
to
$3,380,087 in 2006 and $1,383,406 in 2005. The decrease of $731,728 was
primarily driven by non-cash warrant expenses of $625,947 and loan fees of
$628,834 incurred in 2006 that were not incurred in 2007. For the year 2006
as
compared to 2005, the increase of $1,996,681 included a onetime non-cash warrant
issuance expense of $951,250 for warrants issued in association with the
licensure of technologies and the sale by the Company of convertible debentures,
and a net increase of $486,833 in loan fee expenses associated with the sale
by
the Company of convertible dentures.
Excluding
these non-cash items, there was an increase in normal and customary operating
expense of $523,053 for the period ending September 30, 2007 as compared to
the
same period 2006. The primary drivers of this increased are discussed in detail
below.
Salaries
and Wages:
The
Company hired additional staff to implement its commercialization strategy
in
the fiscal year ended September 30, 2007. This increase in staffing resulted
in
a total expenditure of $828,711 which is an increase of $553,622 over the same
period in 2006 and an increase of $119,853 from 2006 to the same period in
2005.
The company expects this trend to continue.
Research
and Development:
The
Company spent $435,534 in research and development activities during the fiscal
year ended September 30, 2007. This represented a decrease of $513,938 as
compared to the same period in 2006 and an increase of $448,049 for the year
2006 versus the same period in 2005. This illustrates the Company’s ramp up of
research and development expenditures during 2005 and 2006. As the Company
began
to focus on commercializing the technology, the related research and development
expenditures declined in 2007.
Professional
Services:
Consulting
services were $117,751, an increase of $69,901 for the fiscal year ended
September 30, 2007 compared to the prior year. This increase was largely driven
by the expansion of the Company’s Scientific Advisory Board and increased
contract engineering expenses related to the efforts to commercialization of
the
Company’s product. The decrease expenditures for the year ending September 30,
2006 versus the same period in 2005 was $273,094 which resulted primarily from
the replacement of outside consultants with employees.
Legal
and
Accounting fees increased $162,185 to $302,478 for the fiscal year ended
September 30, 2007. This increase was primarily the result of legal work
relating to the Company’s attempted acquisition of manufacturing assets, and
from enforcing the Company’s contact rights with several vendors. Legal and
accounting fees were relatively flat for the year ending September 30, 2006
as
compared to the same period in 2005, an increase of $33,044.
Travel:
Travel
and associated expenses were $158,503 for the fiscal year ended September 30,
2007. This represents an increase of $116,680 as compared to the same period
in
2006 and an increase of $30,589 for fiscal year 2006 as compared to the same
period in 2005. These increases are due to increased travel directed at sales
and business development efforts.
Other
Operating Expenses:
Additionally,
advertising expenses were $47,573 for the fiscal year 2007, an increase of
$38,523 for the same period in 2006, an increase of $5,071 for the same period
in 2005. This increase resulted from the Company’s increased efforts to generate
sales.
Insurance
expenses were $66,856 for the fiscal year ended September 30, 2007, an increase
of $64,151 from the prior period. This increase was primarily caused by
increased coverage and the addition of a directors and officers insurance
package. The increase of $1,947 between the fiscal years 2006 and 2005 was
primarily driven by increase coverage levels.
For
the
fiscal year ended September 30, 2007, the Company’s consolidated net loss was
$(1,289,497) as compared to $(3,441,940) for the same period ended September 30,
2006 and $(1,400,839) for the same period ended September 30, 2005. The
decreased net loss in 2007 was primarily related to i) $1,100,000 non-operating
settlement of an asset purchase agreement which resulted in cash inflow and
a
non-operating income ii) a decreased operating expenses of $731,728 as discussed
above, iii) increased interest income of $164,699 resulting for the loan to
Sencera and iv) decreased interest expense with the conversion of outstanding
debentures into equity in 2006. This resulted in a net loss per was of $(0.01)
for the twelve months ended September 30, 2007.
The
increase of $2,041,101 between the 2006 and 2005 periods resulted from a one
time non-cash warrant issuance expense of $951,250 for warrant expenses
accounted for in the period ended September 30, 2006, and a net increase of
$486,833 in loan fee expenses associated with the sale by the Company of
convertible dentures. Excluding the one time non-cash warrant expense and net
loan fee expenses, in the comparative analysis between the periods, results
in
an increase of $578,017 in net loss for the period ended September 30, 2006
as
compared to the same period 2005. The net loss per share was less than $(0.02)
for the twelve month period ended September 30, 2006 and $(0.01) for the same
period in 2005.
Due
to
the Company’s change in primary business focus in October 2003 and the
developing nature of its business opportunities these historical results may
not
necessarily be indicative of results to be expected for any future period.
As
such, future results of the Company may differ significantly from previous
periods. Since inception in 1997 the Company has an accumulated deficit totaling
($10,460,850) at September 30, 2007.
Liquidity
and Capital Resources
Working
Capital at September 30, 2007 was $1,515,437 as compared to $4,065,524 for
the
same period in 2006 and as compared to a working capital (deficit) of $(718,380)
at September 30, 2005. There were insignificant operating cash flows totaling
$6,880 during the twelve months ended September 30, 2007 and $8,000 in the
same
period in 2006 and zero in the same period in 2005.
Cash
and
cash equivalents at September 30, 2007 were $1,828,125 a decrease of
$(2,826,098) from the same period in 2006. Cash and cash equivalents at
September 30, 2006 were $4,654,223, an increase of $4,398,370 from September
30,
2005.
During
the year ended, September 30, 2007, the Company used $1,289,497 net cash in
operating activities as compared to $1,942,278 net cash in operating activities
for the year ending September 30, 2006 and compared to using $1,049,650 net
cash
for the year ended, September 30, 2005.
The
Company used $843,416 for operating activities during the year ended September
30, 2007 as compared to $1,942,278 for the same period in 2006. The decrease
of
$1,098,862 resulted primarily from a reduced net loss of $2,152,443 offset
by
warrant expense and issuance of common stock for interest of $867,330, change
in
pre-paid expenses of $563,871 and to accounts payable of $826.293.
The
increase of $892,628 in use of cash for operating activities between the 2006
and 2005 periods resulted from one time non-cash expenses for a warrant issuance
expense of $951,250, an expense of $31,500 for the issuance of stock in lieu
of
cash for services, and $241,383 in expenses for the issuance of stock in lieu
of
cash for the payment of accrued interest associated with the sale of debentures
by the Company accounted for in the period ended September 30, 2006. Excluding
these one time non-cash expenses, in the comparative analysis between the
periods, results in a decrease of $331,505 in net cash used in operations for
the period ended September 30, 2006 compared to the same period 2005. This
decrease of net cash used in operations was primarily due to a decrease in
consulting expenses of $273,094 in the 2006 period.
For
the
twelve months ended, September 30, 2007, the Company’s capital needs have
primarily been met from the proceeds of (i) the issuance of Common Stock for
Debenture conversion and; (ii) the issuance of Common Stock for warrant
conversion. Total cash provided by financing activities for the period ended
September 30, 2007 decreased to $135,000. For the period ended September 30,
2006 total cash provided by financing activity increased to $8,171,250 from
$1,380,170 for the same period ended September 30, 2005. The decrease of
$8,036,250 is a result of financing activity in fiscal year 2006 that was not
required to execute on the business plan in 20007. Additionally, $135,000 was
received by the Company for 900,000 warrants that were exercised by a
consultant. The increase of $6,791,080 between the 2006 and 2005 periods was
mainly attributable to an increase of $5,000,000 from the conversion of a
debenture into common stock and $3,171,250 in the conversion of warrants for
common stock.
On
November 1, 2007, XsunX signed a $21 million common stock purchase agreement
with Fusion Capital Fund II, LLC, an Illinois limited liability Company (“Fusion
Capital”). Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. The shares were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
Concurrently with entering into the common stock purchase agreement, we entered
into a registration rights agreement with Fusion Capital. Under the registration
rights agreement, we agreed to file a registration statement related to the
transaction with the U.S. Securities & Exchange Commission (“SEC”) covering
the shares that have been issued or may be issued to Fusion Capital under the
common stock purchase agreement. After the SEC has declared effective the
registration statement related to the transaction we have the right over a
25-month period to sell our shares of common stock to Fusion Capital, from
time
to time, in amounts up to $1 million per sale, depending on certain conditions
as set forth in the agreement, up to the full aggregate commitment of $21
million.
The
purchase price of the shares related to the $20 million balance of future
funding will be based on the prevailing market prices of the Company’s shares at
the time of sales without any fixed discount, and the Company will control
the
timing and amount of any sale of shares to Fusion Capital. There are no upper
limits to the price Fusion Capital may pay to purchase our common stock.
However, Fusion Capital shall not be obligated to purchase any shares of our
common stock on any business day that the price of our common stock is below
$0.20. There are no negative covenants, restrictions on future funding(s),
penalties or liquidated damages in the agreement. The common stock purchase
agreement may be terminated by us at any time at our discretion without any
cost
to us.
In
consideration for entering into the $21 million agreement we agreed to issue
to
Fusion Capital 3,500,000 shares of our common stock as financing commitment
shares which Fusion Capital has agreed to hold for the term of the common stock
purchase agreement. Additionally, under the stock purchase agreement we granted
Fusion Capital common stock purchase warrants to purchase 1,666,666 shares
of
our common stock at $0.50, and 1,666,666 shares of our common stock at $0.75.
The shares underlying the warrant grants do not carry mandatory registration
requirements under the terms of the common stock purchase agreement and
registration rights agreement. The above commitment shares and warrants were
issued in a transaction exempt from registration pursuant to Section 4(2) of
the
Securities Act of 1933.
The
proceeds received by the Company under the common stock purchase agreement
are
expected to be used to build an initial base production system delivering full
size commercial quality solar modules, and initiate the manufacture of the
first
of four (4) planned 25 megawatt systems under the Company’s planned 100 megawatt
thin film solar module production facility. Proceeds may also be used to lease
and prepare manufacturing facilities with the necessary support systems for
the
manufacturing line, inventory, staff, and general working capital.
Contractual
Obligations are shown in the following table -
Contractual
Obligations
|
|
Payments
Due by Period
|
|
|
|
Total
|
|
Less
than
1
Year
|
|
1 - 3
Years
|
|
3 - 5
Years
|
|
More
than
5
Years
|
|
Long
Term Obligations
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Capital
Lease
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating
Lease
(1)
|
|
|
37,118
|
|
|
21,008
|
|
|
16,110
|
|
|
—
|
|
|
—
|
|
Purchase
Obligations
(2),(3)
|
|
|
492,345
|
|
|
492,345
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
Long Term Liabilities Reflected on the Registrant’s Balance Sheet Under
GAAP
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
529,463
|
|
|
513,353
|
|
|
16,110
|
|
|
—
|
|
|
—
|
|
|
(1)
|
Operating
Lease Obligations consist of the lease on the Company’s Administrative and
Sales facility in Golden, CO.
|
|
(2)
|
Remaining
accounts payable associated with the production a roll to roll cassette
cluster tool providing plasma enhanced chemical vapor deposition
(PECVD)
and sputtering system of $353,000.
|
|
(3)
|
Estimated
remaining amount due a third party research and development provider
of
$139,345.
|
The
estimated contract cost in item (2) and (3) above may be higher or lower based
on final costs. The Company has not booked any contingency for cost overruns.
During
the year ended, September 30, 2007, we used $1,822,942 for investing activities
as compared to $2,099,736 for the same period ended September 30, 2006. This
represents a decrease of $276,794 primarily related to the purchase of fewer
fixed assets in 2007 than in the previous year and the purchase of the
marketable manufacturing tool in 2006 which reduced 2007 expenditures. This
difference was offset by the investment of $1,500,000 and associated accrued
interest income in the Sencera Note. During the year ended, September 30, 2006,
we used $2,099,736 for investing activities as compared to $191,995, for the
year ended, September 30, 2005. The increased use of cash for investing
activities resulted from an increase in the acquisition of assets in the form
of
a marketable manufacturing tool and additional equipment.
We
had,
at September 30, 2007, working capital of $1,515,437. The Company has announced
plans to build its manufacturing facility which we anticipate will lead to
revenue after the close of fiscal year 2008. However the cash flow requirements
associated with the transition to revenue recognition may exceed cash generated
from operations in the current and future periods. We may seek to obtain
additional financing from equity and/or debt placements. We have been able
to
raise capital in a series of equity and debt offerings in the past. While there
can be no assurances that we will be able to obtain such additional financing,
on terms acceptable to us and at the times required, or at all, we believe
that
sufficient capital can be raised in the foreseeable future if necessary.
Net
Operating Loss
For
federal income tax purposes, we have net operating loss carry forwards of
approximately $10,960,721 as of September 30, 2007. These carry forwards will
begin to expire in 2010. The use of such net operating loss carry forwards
to be
offset against future taxable income, if achieved, may be subject to specified
annual limitations.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
The
Company maintains interest bearing deposits in the form of U.S. Treasury Notes
in various amounts and maturity periods that allow us to maintain access to
necessary capital to fund operations. These investments in Treasury Notes earn
varied interest rates and upon maturity are subject to market risks associated
with the increase or decrease for the then available rates comparative to the
expiring rates. These investments in U.S Treasury Notes are underwritten by
the
United States Government and are brokered through our association with a U.S.
based and Federally insured bank. We do not believe that these investments
are
subject to foreign currency risks.
Our
products are quoted for sale and licensure in United States dollars and as
our
business development efforts progress we anticipate the sale and/or licensure
of
our products to foreign entities. To the extent that we may be exposed to
foreign currency risks related to the rise and/or fall of foreign currencies
against the U.S. dollar we will report in United States dollars.
Item
8. Financial Statements and Supplementary Data
Please
refer to pages F-
1
through F-
22
.
Item
9. Changes in and Disagreements on Accounting and Financial Disclosure
None
Item
9A. Controls and Procedures
Disclosure
Controls and Procedures
Our
Chief
Executive Officer and Chief Financial Officer, have evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this report. The
evaluation included certain control areas in which we have made, and are
continuing to make, changes to improve and enhance controls. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures were effective, and we have discovered no material weakness.
A
material weakness is a condition in which the design or operation of one or
more
of the internal control components does not reduce to a relatively low level
the
risk that misstatements caused by error or fraud in amounts that would be
material in relation to the financial statements being audited may occur and
not
be detected within a timely period by employees in the normal course of
performing their assigned functions.
Internal
Control over Financial Reporting
The
Securities and Exchange Commission rule making for the Sarbanes-Oxley Act of
2002 Section 404 requires that a company's internal controls over financial
reporting be based upon a recognized internal control framework. The Company
has
an internal control frame work based on COSO Internal Control - Integrated
Framework that has been modified to more appropriately reflect the current
limited operational scope of the company as a Development Stage, smaller public
company. The Company used the COSO guide - The Internal Control over Financial
Reporting - Guidance for Smaller Public Companies to implement the Company’s
internal control framework. Additionally, the limited scope of operations of
the
Company means that traditional separation of duties controls are not used by
the
Company as a result of the limited staffing within the Company. The Company
relies on alternative procedures to overcome this non-material control
weakness.
During
the first half of the Company's fiscal year ending September 30, 2008 management
will continue revising the Company's internal and controls procedure document
basing this revision upon additional guidance for implementing the model
framework created by the Committee of Sponsoring Organizations of the Treadway
Commission (or "COSO") as is appropriate to our operations and operations of
smaller public entities. This framework is entitled Internal Control-Integrated
Framework. The COSO Framework, which is the common shortened title, was
published in 1992 and has been updated, and we believe will satisfy the
Securities and Exchange Commission requirements of Section 404 of the
Sarbanes-Oxley Act of 2002. As the Company expands operations, additional staff
will be added to implement separation of duties controls as
well.
As
of
September 30, 2007, the Company’s board of directors had one outside director
and did not have an audit committee of the board of directors. Additional
outside directors were appointed in November of 2007. The newly expanded board
of directors will appoint committees as necessary, including an audit committee.
Changes
in Internal Control over Financial Reporting
Except
as
noted above, there have not been any changes in our internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during our fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Report
of Independent Registered Public Accounting Firm
Based
on
this assessment, management determined that, as of September 30, 2007, the
Company maintained effective internal control over financial reporting. Jaspers
+ Hall, PC, an independent registered public accounting firm, who audited and
reported on the consolidated financial statements of the Company included in
the
report on the financial statements on page 47.
XSUNX,
INC.
(A
Development Stage Company)
JASPERS
+ HALL, PC
CERTIFIED
PUBLIC ACCOUNTANTS
9175
E. Kenyon Avenue, Suite 100
Denver,
CO 80237
303-796-0099
REPORT
OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
Board
of
Directors
XSUNX,
INC.
Aliso
Viejo, CA
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting, that Xsunx, Inc. maintained
effective internal control over financial reporting as of September 30, 2007,
based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Xsunx, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that Xsunx, Inc. maintained effective internal
control over financial reporting as of September 30, 2007, is fairly stated,
in
all material respects, based on the COSO criteria. Also, in our opinion, Xsunx,
Inc. maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2007, based on the COSO criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the accompanying consolidated balance sheets
of
Xsunx, Inc. as of September 30, 2005, 2006, and 2007, and the related
consolidated statements of income, stockholders’ equity, and cash flows for the
years then ended, and our report dated December 28, 2007 expressed an
unqualified opinion thereon.
December
28, 2007
Item
9B. Other Information
Sale
of Unregistered Securities and Financing Agreement
On
November 1, 2007, XsunX signed a $21 million common stock purchase agreement
with Fusion Capital Fund II, LLC, an Illinois limited liability Company (“Fusion
Capital”). Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. The shares were issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
Concurrently with entering into the common stock purchase agreement, we entered
into a registration rights agreement with Fusion Capital. Under the registration
rights agreement, we agreed to file a registration statement related to the
transaction with the U.S. Securities & Exchange Commission (“SEC”) covering
the shares that have been issued or may be issued to Fusion Capital under the
common stock purchase agreement. After the SEC has declared effective the
registration statement related to the transaction we have the right over a
25-month period to sell our shares of common stock to Fusion Capital, from
time
to time, in amounts up to $1 million per sale, depending on certain conditions
as set forth in the agreement, up to the full aggregate commitment of $21
million.
The
purchase price of the shares related to the $20 million balance of future
funding will be based on the prevailing market prices of the Company’s shares at
the time of sales without any fixed discount, and the Company will control
the
timing and amount of any sale of shares to Fusion Capital. There are no upper
limits to the price Fusion Capital may pay to purchase our common stock.
However, Fusion Capital shall not be obligated to purchase any shares of our
common stock on any business day that the price of our common stock is below
$0.20. There are no negative covenants, restrictions on future funding(s),
penalties or liquidated damages in the agreement. The common stock purchase
agreement may be terminated by us at any time at our discretion without any
cost
to us.
In
consideration for entering into the $21 million agreement we agreed to issue
to
Fusion Capital 3,500,000 shares of our common stock as financing commitment
shares which Fusion Capital has agreed to hold for the term of the common stock
purchase agreement. Additionally, under the stock purchase agreement we granted
Fusion Capital common stock purchase warrants to purchase 1,666,666 shares
of
our common stock at $0.50, and 1,666,666 shares of our common stock at $0.75.
The shares underlying the warrant grants do not carry mandatory registration
requirements under the terms of the common stock purchase agreement and
registration rights agreement. The above commitment shares and warrants were
issued in a transaction exempt from registration pursuant to Section 4(2) of
the
Securities Act of 1933.
The
proceeds received by the Company under the common stock purchase agreement
are
expected to be used to build an initial base production system delivering full
size commercial quality solar modules, and initiate the manufacture of the
first
of four (4) planned 25 megawatt systems under the Company’s planned 100 megawatt
thin film solar module production facility. Proceeds may also be used to lease
and prepare manufacturing facilities with the necessary support systems for
the
manufacturing line, inventory, staff, and general working capital.
Changes/Additions
to the Board of Directors
Addition — Mr.
Oz Fundingsland as Director
On
November 12, 2007, the Company announced the appointment of Mr. Oz Fundingsland
as Director, effective November 12, 2007. Mr. Fundingsland brings over forty
years of sales, marketing, executive business management, finance, and corporate
governance experience to XsunX. His professional and business experience
principally originated with his tenure, commencing in 1964, at Applied Magnetics
Corp., a disk drive and data storage company. Prior to his retirement from
Applied Magnetics in 1994, Mr. Fundingsland served as an Executive Officer
and
Vice President of Sales and Marketing for 11 years directing sales growth from
$50 million to over $550 million. Commencing in 1993 through 2003 Mr.
Fundingsland served as a member of the board of directors for the International
Disk Drive Equipment Manufacturers Association “IDEMA” where he retired
emeritus, and continues to serve as an advisor to the board. For the last 13
years, Mr. Fundingsland has provided consulting services assisting with sales,
marketing, and management to a host of companies within the disk drive, optical,
software, and LED industries.
Addition — Dr.
Michael A. Russak as Director
On
November 28, 2007, the Company announced the appointment of Dr. Michael A.
Russak as a Director, effective November 26, 2007. Dr. Russak is also a member
of the Company’s Scientific Advisory Board. Dr. Michael A. Russak has been
working as a consultant in the hard disk drive and photovoltaic industries
since
Jan 2007. He is also currently the Executive Director of IDEMA-U.S. (the hard
disk drive industry trade association) and a member of the Board of Directors
and Scientific Advisory Board of XsunX, Inc. From 2001 to 2006 he was President
and Chief Technical Officer of Komag, Inc., a manufacturer of hard magnetic
recording disks for hard disk drive applications. From 1993 to 2001 he was
Chief
Technical Officer of HMT Technology, Inc. also a manufacturer of magnetic
recording disks. From 1985 to 1993 he was a research staff member and program
manager in the Research Division of the IBM Corporation. Dr. Russak has over
thirty five years of industrial experience progressing from a research scientist
to senior executive officer of two public companies. He has expertise in thin
film materials and devices for magnetic recording, photovoltaic, solar thermal
applications, semiconductor devices as well as glass, glass-ceramic and ceramic
materials. He also has over twelve years experience at the executive management
level of public companies with significant off shore development and
manufacturing functions. He received his B.S. in Ceramic Engineering in 1968
and
Ph.D. in Materials Science in 1971, both from Rutgers University in New
Brunswick, NJ. During his career, he has been a contributing scientist and
program manager at the Grumman Aerospace Corporation, a Research Staff Member
and technical manager in the areas of thin film materials and processes at
the
Research Division of the IBM Corporation at the T.J. Watson Research
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film
disks for magnetic storage, as Vice President of Research and Development.
His
responsibilities included new product design and introduction. Dr. Russak became
Chief Technical Officer of HMT and held that position until 2000 when HMT merged
with Komag Inc. Dr. Russak was appointed President and Chief Technical Officer
of the combined company. He continued to set technical, operational and business
direction for Komag until his retirement at the end of 2006. He has published
over 90 technical papers, and holds 23 U.S. patents.
Stock
Compensation, Grant of Stock Purchase Options
As
part
of a plan for the Company to provide incentives to employees and consultants,
and attract new employees and members to its Board of Directors the Company
engages in a policy of providing stock option grants. Between the period
beginning October 1, 2007 and the date of this report, the board of directors
authorized the grant of options to purchase an aggregate of 3,800,000 shares
of
the Company’s common stock. Such options are exercisable at the price of $.36
per share, and expire at various times through November 2012.
Employment
Incentive Option Grants — In connection with the start of the
Company’s efforts to prepare, install, and operate solar module manufacturing
capabilities, the Company authorized employment incentive option grants to
the
following employees on October 23rd 2007 at an exercise price per share of
$0.36. The options have a 5 year exercise terms and vest in conjunction with
a
performance milestone based vesting schedule as described below:
Joseph
Grimes
|
|
500,000
Option Shares
|
Robert
G. Wendt
|
|
500,000
Option Shares
|
Dr.
Guang Lin
|
|
300,000
Option Shares
|
The
vesting schedule for Mr. Grimes and Mr. Wendt is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee(s) of the following performance milestones as
they may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
|
(a)
|
100,000
shares upon the assembly and commissioning of the base line production
system.
|
|
(b)
|
100,000
shares upon the production of a commercial size working sample of
the
Company’s planned tandem junction amorphous silicon solar module.
|
|
(c)
|
300,000
shares upon the assembly and commissioning of the initial 25 mega
watt
production system as contemplated within the Company’s phased build out
plan for a solar module manufacturing facility.
|
The
vesting schedule for Dr. Guang is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following performance milestones as they
may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
|
(a)
|
100,000
shares upon the assembly and commissioning of the base line production
system.
|
|
(b)
|
150,000
shares upon the production of a commercial size working sample of
the
Company’s planned tandem junction amorphous silicon solar module.
|
|
(c)
|
50,000
shares upon the assembly and commissioning of the initial 25 mega
watt
production system as contemplated within the Company’s phased build out
plan for a solar module manufacturing facility.
|
Board
of
Directors Incentive Option Grants — In furtherance of the Company’s
policy to compensate current members, and attract new members, to its Board
of
Directors the Company authorized incentive option grants to the following
Directors at an exercise price per share of $0.36. The options have a 5 year
exercise terms and vest as described below:
Thomas
Anderson
|
|
October
23, 2007
|
|
1,500,000
Option Shares (*)
|
Oz
Fundingsland
|
|
November
11, 2007
|
|
500,000
Option Shares
|
Dr.
Michael Russak
|
|
November
26, 2007
|
|
500,000
Option Shares
|
The
vesting schedule for Mr. Anderson is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
The
Option became exercisable in the amount of 1,000,000 shares upon
the
effective date of the grant for services rendered as a member of
the
Company Board of Directors from the period beginning October 1, 2003
through September 30, 2007.
|
|
(b)
|
Beginning
October 1, 2007 the Option shall vest and become exercisable at the
rate
of 62,500 shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 250,000 shares.
|
The
vesting schedule for Mr. Fundingsland is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning
November 12, 2007 the Option shall vest and become exercisable at
the rate
of 62,500 shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 500,000 shares.
|
The
vesting schedule for Dr. Russak is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning
November 26, 2007 the Option shall vest and become exercisable at
the rate
of 62,500 shares upon the anniversary of each calendar quarter of
continuous service as a Director, or prorated portion thereof, for
services rendered as a member of the Company Board of Directors up
to a
total of 500,000 shares.
|
(*)
Amendment to Stock Option Grant — On November 12, 2007, the Company
entered into an agreement amending the terms of a stock option grant dated
October 23, 2007 between the Company and Mr. Thomas Anderson, a member of the
XsunX Board of Directors. The amendment provided for an increase of 250,000
options to the pool of options available within the vesting provisions of the
grant. All other provisions of the stock option grant remained the same. Item
(b) to the vesting schedule was amended as follows:
|
(b)
|
Beginning
October 1, 2007 the Option became exercisable at the rate of 62,500
shares
upon the anniversary of each calendar quarter of continuous service
as a
Director, or prorated portion thereof, for services rendered as a
member
of the Company Board of Directors up to a total of 500,000
shares.
|
PART
III
Item
10. Directors, Executive Officers, and Corporate Governance
The
following table lists the executive offices and directors of the Company as
of
September 30, 2007:
Name
|
|
Age
|
|
Position
Held
|
|
Tenure
|
Tom
Djokovich
|
|
50
|
|
President,
CEO, Director
|
|
Since
October 2003
|
Joseph
Grimes
|
|
50
|
|
COO
|
|
Since
April 2006
|
Jeff
Huitt
|
|
46
|
|
CFO
|
|
Since
January 2007
|
Thomas
Anderson
|
|
39
|
|
Director
|
|
Since
August 2001
|
The
directors named above will serve until the next annual meeting of the Company’s
stockholders. Thereafter, directors will be elected for one-year terms at the
annual stockholders’ meeting. Officers will hold their positions at the pleasure
of the board of directors. There is no arrangement or understanding between
the
directors and officers of the Company and any other person pursuant to which
any
director or officer was or is to be selected as a director or officer.
The
directors of the Company will devote such time to the Company’s affairs on an
“as needed” basis, but typically less than 20 hours per month. As a result, the
actual amount of time which they will devote to the Company’s affairs is unknown
and is likely to vary substantially from month to month.
Biographical
Information
TOM
DJOKOVICH, age 50, President and Chief Executive Officer as of October 2003,
and
Director;
Mr.
Djokovich was the founder and served from 1995 to 2002 as the Chief Executive
Officer of Accesspoint Corporation, a vertically integrated provider of
electronic transaction processing and e-business solutions for merchants. Under
Mr. Djokovich’s guidance, Accesspoint became a member of the Visa/MasterCard
association, the national check processing association NACHA, and developed
one
of the payment industry’s most diverse set of network based transaction
processing, business management and CRM systems for both Internet and
conventional points of sale. Prior to Accesspoint, Mr. Djokovich founded TMD
Construction and Development in 1979. TMD provided management for
multimillion-dollar projects incorporating at times hundreds of employees,
subcontractors and international material acquisitions for commercial,
industrial and custom residential construction services as a licensed building
firm in California. In 1995 Mr. Djokovich developed an early Internet based
business-to-business ordering system for the construction industry.
JOSEPH
GRIMES, age 50, Chief Operating Officer as of April 2006;
Mr.
Grimes brings to XsunX more than eight years direct experience in thin-film
technology and manufacturing. He was most recently Vice President, Defense
Solutions, for Envisage Technology Company, where he directed and managed the
defense group business development process, acquisition strategies and vision
for next generation applications from October 2005 to March 2006. Previously
he
was Co-Founder, President and CEO of ISERA Group, where he established the
company infrastructure and guided five development teams, finally selling the
company to Envisage from 1993 to 2005. His direct experience in thin-film
technology came with Applied Magnetics Corporation from 1985 to 1993 as manager
for thin-film prototype assembly. Mr. Grimes holds a Bachelor’s degree in
business economics and environmental studies, and a Master’s in computer
modeling and operation research applications, both from the University of
California at Santa Barbara.
JEFF
HUITT, age 46, became Chief Financial Officer in January 2007;
Jeff
Huitt serves as Chief Financial Officer at XsunX. Located in the Golden,
Colorado research facility, his responsibilities include operations management
and coordination of resources. He has over 20 years experience in leadership
positions of both larger organizations and start ups, most recently as President
of Parking Stripes Advertising, a private start-up media company from October
2006 to August 2007. Prior to that, he was COO/CFO of a startup defense
contractor guiding the company through high growth and a recapitalization from
January 2004 to October 2006. His additional experience includes CFO of iSherpa
Capital, from October 2001 to January 2004 and Controller of Qwest Wireless
from
1996 to 2000.
Mr.
Huitt
is a CPA and holds two degrees from the University of Denver: a Bachelor of
Science in Accounting and a Master’s in Business Administration.
THOMAS
ANDERSON, age 42, became a director of the Company in August 2001;
Mr.
Anderson presently works as the Managing Director of the Environmental Science
and Engineering Directorate of Qinetiq North America in Los Alamos, New Mexico.
He has been with Qinetiq North America, formerly Apogen Technologies, since
January, 2005. Mr. Anderson has worked for past 18 years in the environmental
consulting field, providing consulting services in the areas of environmental
compliance, characterization and remediation services to Department of Energy,
Department of Defense, and industrial clients. He formerly worked as a Senior
Environmental Scientist at Concurrent Technologies Corp. from November 2000
to
December 2004. He earned his B.S. in Geology from Denison University and his
M.S. in Environmental Science and Engineering from Colorado School of Mines.
Board
Committees
As
of
September 30, 2007, the Company’s board of directors had one outside director
and did not have any board committees. Additional outside directors were
appointed in November of 2007. The newly expanded board of directors intends
to
appoint committees as necessary.
Compliance
with Section 16(A) of the Exchange Act
Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
certain persons who own more than 10% of a registered class of the Company’s
equity securities (collectively, “Reporting Persons”), to file reports of
ownership and changes in ownership (“Section 16 Reports”) with the Securities
and Exchange Commission (the “SEC”). Reporting Persons are required by the SEC
to furnish the Company with copies of all Section 16 Reports they file.
Based
solely on its review of the copies of such Section 16 Reports received by it,
or
written representations received from certain Reporting Persons, the following
persons were required to file forms pursuant to Section 16(a):
Name
|
|
Form
|
|
Filed
|
Tom
Djokovich
|
|
Form
3
|
|
October
24, 2003
|
Joseph
Grimes
|
|
Form
3
|
|
December
21, 2007
|
Jeff
Huitt
|
|
Form
3
|
|
Did
not file
|
Thomas
Anderson
|
|
Form
3
|
|
Did
not file
|
Michael
Russak
|
|
Form
3
|
|
Did
not file
|
Os
Fundingsland
|
|
Form
3
|
|
Did
not file
|
Item
11. Executive Compensation
Director
Compensation
In
the
fiscal period ended September 2007 Directors received no cash compensation
for
their service to the Company as directors, but were reimbursed for expenses
actually incurred in connection with attending meetings of the Board of
Directors.
SUMMARY
COMPENSATION TABLE OF DIRECTORS
Name
|
|
Annual
Retainer
Fees
($)
|
|
Meeting
Fees
($)
|
|
Consulting
Fees/
Other
Fees ($)
|
|
Number
of
Shares
(#)
|
|
Number
of
Securities
Underlying
Options
SARS
(#)
|
|
Director,
Tom Djokovich
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
Director,
Thomas Anderson
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
Executive
Officer Compensation
The
annual compensation for the executive officers of the Company for the post
reorganization operations has not yet been determined, but is expected to be
established by a resolution of the Company’s Board of Directors in the future.
The
following table and notes set forth the annual cash compensation paid to
officers of the Company.
Name
& Principal Position
|
|
Fiscal
Year
|
|
Annual
Salary
($)
|
|
Annual
Bonus
($)
|
|
Awards
Other
Annual
Compensation
($)
|
|
Restricted
Stock
Award(s)
($)
|
|
Securities
Underlying
Options/SARS
(#)
|
|
Tom
Djokovich, President
(1)
|
|
|
2007
|
|
$
|
150,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
2006
|
|
$
|
150,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
2005
|
|
$
|
150,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Joseph
Grimes, COO
(2)
|
|
|
2007
|
|
$
|
150,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
500,000
|
|
|
|
|
2006
|
|
$
|
150,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
612,000
|
|
|
|
|
2005
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Jeff
Huitt, CFO
(3)
|
|
|
2007
|
|
$
|
135,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
500,000
|
|
|
|
|
2006
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
2005
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(1)
|
In
the fiscal period ended September 30, 2007, the Company agreed to
pay Mr.
Djokovich an annual salary of $150,000 for services provided as Chief
Executive Officer up to and until the Company determines executive
compensation pursuant to an employment agreement as determined by
the
Board. In addition to Mr. Djokovich’s base compensation the Company also
provides Mr. Djokovich with a $400 monthly health insurance allowance.
Effective November 2007 the Company agreed to increase Mr. Djokovich
annual salary to $220,000. When necessitated by the Company’s adverse
financial condition Mr. Djokovich has agreed to the deferment of
his
monthly salary up to and until such time that the Company can repay
any
such deferred amounts.
|
|
(2)
|
The
Company has agreed to pay Mr. Grimes an annual salary of $150,000
for
services provided as Chief Operating Officer under the terms of an
employment agreement effective January 1, 2007. In addition to Mr.
Grimes
base compensation the Company also provides Mr. Grimes with a $400
monthly
health insurance allowance. Effective November 2007, the Company
agreed to
increase Mr. Grimes annual salary to $210,000.
|
|
(3)
|
The
Company has agreed to pay Mr. Huitt an annual salary of $135,000
for
services provided as Chief Financial Officer under the terms of an
employment agreement effective January 1, 2007. In addition to Mr.
Huitts
base compensation the Company also provides Mr. Huitt with a $400
monthly
health insurance allowance. Effective November 2007, the Company
agreed to
increase Mr. Huitt’s annual salary to $155,000.
|
Option/SAR
Grants Table
(None)
Aggregated
Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR Value
(None)
Long
Term Incentive Plans — Awards in Last Fiscal Year
The
following table and notes set forth the incentive awards provided to officers
of
the Company in 2007 fiscal period.
|
|
Date
Issued
|
|
Number
Issued
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Consideration
|
Joseph
Grimes
(1)
|
|
5-Apr-06
|
|
112,000
|
|
$
1.69
|
|
5-Apr-11
|
|
As
part of an employment incentive agreement
|
Joseph
Grimes
(2)
|
|
20-Jul-06
|
|
500,000
|
|
$
0.51
|
|
20-Jul-11
|
|
As
part of an employment incentive agreement
|
Joseph
Grimes
(3)
|
|
26-Jan-07
|
|
500,000
|
|
$
0.46
|
|
26-Jan-12
|
|
As
part of an employment incentive agreement
|
Jeff
Huitt
(4)
|
|
26-Jan-07
|
|
500,000
|
|
$
0.46
|
|
26-Jan-12
|
|
As
part of an employment incentive agreement
|
|
(1)
|
Employment
Incentive Warrants — In connection with the issuance of an
employment agreement to Joseph Grimes in April 2006, the Company
granted
500,000 warrants at the then market price of $1.69. On July 20, 2006
the
Company and Mr. Grimes mutually agreed to the cancellation of the
remaining 388,000 unvested balance of this warrant.
|
|
(2)
|
Employment
Incentive Warrants — In connection with the issuance of an
employment agreement to Joseph Grimes in April 2006, the Company
granted
500,000 warrants on July 20, 2006 at the then market price of $0.51.
The
warrant vested at the rate of 28,000 shares per month up to and through
the first nine months of employment, 100,000 shares became exercisable
upon delivery of a marketing plan by Mr. Grimes to the Board of Directors,
148,000 shares will become exercisable upon the first sale or licensure
of
an XsunX technology under the marketing plan.
|
|
(3)
|
Employment
Incentive Options — In connection with the issuance of an
employment agreement to Joseph Grimes in January 2007, the Company
granted
500,000 options effective January 1 at the then market price of $0.46.
The
option began vesting at the rate of 50,000 shares per calendar quarter
up
to a total of 400,000 shares. Another 50,000 shall vest and become
exercisable upon each of the first two sales/licensure of an XsunX
system.
|
|
(4)
|
Employment
Incentive Option — In connection with the issuance of an
employment agreement to Jeff Huitt in January 2007, the Company granted
500,000 options effective January 1 at the then market price of $0.46.
The
option began vesting at the rate of 50,000 shares per calendar quarter
up
to a total of 400,000 shares. Another 50,000 shall vest and become
exercisable upon each of the first two sales/licensure of an XsunX
system.
|
No
other
compensation not described above was paid or distributed during the last fiscal
year to the executive officers of the Company. There are no compensatory plans
or arrangements, with respect to any executive office of the Company, which
result or will result from the resignation, retirement or any other termination
of such individual’s employment with the Company or from a change in control of
the Company or a change in the individual’s responsibilities following a change
in control.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
following table sets forth, as of the date of this Report, the number of shares
of common stock owned of record and beneficially by executive officers,
directors and persons who hold 5.0% or more of the outstanding common stock
of
the Company as of December 28, 2007. Also included are the shares held by all
executive officers and directors as a group. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o XsunX, Inc., 65 Enterprise,
Aliso Viejo, California 92656.
Shareholders/Beneficial
Owners
|
|
Number
of
Shares
|
|
Ownership
Percentage
(1)
|
|
Tom
Djokovich
(2)
President
& Director
|
|
|
17,903,000
|
|
|
10.87
|
%
|
Thomas
Anderson
(3)
Director
|
|
|
1,161,067
|
|
|
0.70
|
%
|
Oz
Fundingsland
(3)
Director
|
|
|
62,500
|
|
|
0.03
|
%
|
Mike
Russak
(3)
Director
|
|
|
87,500
|
|
|
0.05
|
%
|
Joseph
Grimes
(3)
Chief
Operating Officer
|
|
|
664,000
|
|
|
0.40
|
%
|
Jeff
Huitt
(3)
Chief
Financial Officer
|
|
|
200,000
|
|
|
0.12
|
%
|
All
directors and executive officers as a group of (6 persons) account for ownership
of 20,078,067 shares representing 12.19% of the issued and outstanding common
stock. Each principal shareholder has sole investment power and sole voting
power over the shares.
|
(1)
|
Applicable
percentage ownership is based on 164,752,188 shares of common stock
issued
and outstanding as of December 28, 2007. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect
to securities. Shares of common stock that are currently exercisable
or
exercisable within 60 days of December 28, 2007 are deemed to be
beneficially owned by the person holding such securities for the
purpose
of computing the percentage of ownership of such person, but are
not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
|
|
(2)
|
Includes
16,978,000 shares owned by the Djokovich Limited Partnership. Mr.
Djokovich shares voting and dispositive power with respect to these
shares
with Mrs. Tamara Djokovich.
|
|
(3)
|
Includes
warrants/options that may vest and be exercised within 60 days of
the date
of December 28, 2007.
|
Item
13. Certain Relationships and Related Transactions, and Director Independence
No
officer or director of the Company has or proposes to have any direct or
indirect material interest in any asset proposed to be acquired by the Company
through security holdings, contracts, options, or otherwise.
The
Company has adopted a policy under which any consulting or finder’s fee that may
be paid to a third party for consulting services to assist management in
evaluating a prospective business opportunity would be paid in stock, stock
purchase options or in cash. Any such issuance of stock or stock purchase
options would be made on an ad hoc basis. Accordingly, the Company is unable
to
predict whether or in what amount such a stock issuance might be made.
Item
14. Principal Accounting Fees and Services
The
Company’s Board acts as the audit committee and had no “pre-approval policies
and procedures” in effect for the auditors’ engagement for the audit year 2005,
2006 and 2007.
All
audit
work was performed by the auditors’ full time employees.
Michael
Johnson & Co., LLC, formerly auditors for the Company, was dismissed as
auditor on July 18, 2005. Jaspers + Hall, PC were engaged as auditors for
Company on July 18, 2005.
Jaspers
+
Hall, PC, is now the Company’s principal auditing accountant firm. The Company’s
Board of Directors has considered whether the provision of the audit services
is
compatible with maintaining Jaspers + Hall, PC independence.
Audit
Fees 2007:
As
of the
period ended September 30, 2007 Jaspers + Hall, PC had billed the Company
$14,500 for the following professional services: review of the interim financial
statements included in quarterly reports on Form 10-Q for the periods ended
December 31, 2006 March 30, and June 30, 2007. No other fees we billed by
Jaspers + Hall, PC in the period ended September 30, 2007.
Audit
Fees 2006:
As
of the
period ended September 30, 2006 Jaspers + Hall, PC had billed the Company $7,500
for the following professional services: review of the interim financial
statements included in quarterly reports on Form 10-QSB for the periods ended
December 31, April 30, and June 30, 2006. No other fees we billed by Jaspers
+
Hall, PC in the period ended September 30, 2006.
Audit
Fees 2005:
As
of the
period ended September 30, 2005 Jaspers + Hall, PC had billed the Company $1,500
for the following professional services: review of the interim financial
statements included in quarterly reports on Form 10-QSB for the periods ended
June 30, 2005 and annual financial statements included in annual reports on
Form
10-KSB for the period ended September 30, 2005. No other fees we billed by
Jaspers + Hall, PC in the period ended September 30, 2006.
The
Company’s previous auditor, Michael Johnson & Co, LLC, billed the Company
$7,500 for the following professional services: audit of the annual financial
statement of the Company for the fiscal year ended September 30, 2004, review
of
the interim financial statements included in quarterly reports on Form 10-QSB
for the periods ended December 31, 2004, March 31, 2005.
The
Company’s Board acts as the audit committee and had no “pre-approval policies
and procedures” in effect for the auditors’ engagement for the audit year 2005,
2006, and 2007.
PART
IV
Item
15. Exhibits, Financial Statement Schedules
1.
The
following is a list of Current Reports filed by the Company in the fiscal year
ended September 30, 2007. These reports are filed as part of this report:
Reports
on Form 8-K:
|
|
Date
Filed
|
Report
on Form 8-K related to the Company entering into a corporative development
agreement,
the licensure of certain plasma deposition technologies, and the
issuance
of a
$1.5
million dollar line of credit to Sencera, LLC.
|
|
1/3/2007
|
|
|
|
Report
on Form 8-K related to the adoption of the Company’s 2007 Stock Option
Plan
|
|
1/5/2007
|
|
|
|
Report
on Form 8-K related to the Company entering into four employment
agreements, a consulting agreement, and the issuance of five incentive
option agreements.
|
|
2/13/2007
|
|
|
|
Report
on Form 8-K related to the Company entering into a consulting agreement
and the issuance of an incentive option agreement.
|
|
2/28/2007
|
|
|
|
Report
on Form 8-K related to the Company entering into a binding letter
of
intent to
purchase
certain solar module manufacturing assets.
|
|
3/28/2007
|
|
|
|
Report
on Form 8-K related to the Company entering into a consulting agreement
and the issuance of an incentive option agreement.
|
|
4/25/2007
|
|
|
|
Report
on Form 8-K related to the Company’s issuance of a press release providing
up date information related to the Company’s efforts to develop solar
module manufacturing
capabilities.
|
|
7/18/2007
|
|
|
|
Report
on Form 8-K related to the Company’s entering into a settlement agreement
with the seller of certain solar module manufacturing assets related
to
the Company’s claims of an alleged breach by the seller of a binding
letter of intent between the parties.
|
|
8/28/2007
|
|
|
|
Report
on Form 8-K related to the Company entering into a consulting agreement
and the issuance of an incentive option agreement.
|
|
8/31/2007
|
|
|
|
Report
on Form 8-K related the Company’s completion of funding a $1.5 million
dollar secured note under the terms of a promissory note and a technology
license and development agreement.
|
|
9/14/2007
|
|
|
|
Report
on Form 8-K related to the exercise by a consultant of
warrants.
|
|
9/19/2007
|
The
following is a list of Current Reports on Form 8-K filed by the Company
subsequent to the fiscal year ended September 30, 2007. These reports are filed
as part of this report:
Report
on Form 8-K related the Company’s issuance of three incentive option
grants to employees.
|
|
10/29/2007
|
|
|
|
Report
on Form 8-K related to the Company’s issuance of an option grant a
director.
|
|
10/29/2007
|
|
|
|
Report
on Form 8-K and 8-KA related to the Company entering into a stock
purchase
and financing agreement.
|
|
11/2/2007
|
|
|
|
Report
on Form 8-KA related to clarifying and correcting certain specifics
to
reports filed in November 2, 2007 related to the Company entering
into a
stock purchase and financing
agreement.
|
|
11/5/2007
|
|
|
|
Report
on Form 8-K related to a press release announcing the Company’s entering
into a stock purchase and financing agreement.
|
|
11/7/2007
|
|
|
|
Report
on Form 8-K related to the appointment of a new director, the issuance
of
an option grant to the director, and an amendment to a previous option
grant to a director.
|
|
11/14/2007
|
|
|
|
Report
on Form 8-K related to the appointment of a new director and the
issuance
of a stock option grant to the director.
|
|
11/28/2007
|
|
|
|
2.
Exhibits:
Exhibit
|
|
Description
|
3.1
|
|
Articles
of Incorporation
(1)
|
3.2
|
|
Bylaws
(2)
|
10.1
|
|
XsunX
Plan of Reorganization and Asset Purchase Agreement, dated September
23,
2003.
(3)
|
10.2
|
|
MVSystems,
Inc. Technology License Agreement, dated September 2004.
(4)
|
10.3
|
|
MVSystems,
Inc. Expanded Technology License Agreement, dated October
2005.
(5)
|
10.4
|
|
Sencera,
LLC, Technology Development and License Agreement, dated January
1,
2007.
(6)
|
10.5
|
|
Sencera,
LLC, 10% secured Promissory Note and Loan Agreement, dated January
1,
2007.
(6)
|
10.6
|
|
XsunX
2007 Stock Option Plan, dated January 5, 2007.
(7)
|
10.7
|
|
Dr.
John Moore, Scientific Advisory Board Consulting Agreement, dated
January
26, 2007.
(8)
|
10.8
|
|
Dr.
John Moore, Stock Option Grant, dated January 26, 2007.
(8)
|
10.9
|
|
Jeff
Huitt, Employment Agreement, dated January 26, 2007.
(8)
|
10.10
|
|
Jeff
Huitt, Stock Option Grant, dated January 26, 2007.
(8)
|
10.11
|
|
Robert
Wendt, Employment Agreement, dated January 26, 2007.
(8)
|
10.12
|
|
Robert
Wendt, Stock Option Grant, dated January 26, 2007.
(8)
|
10.13
|
|
Joseph
Grimes, Employment Agreement, dated January 26, 2007.
(8)
|
10.14
|
|
Joseph
Grimes, Stock Option Grant, dated January 26, 2007.
(8)
|
10.15
|
|
Dr.
Edward Yu, Scientific Advisory Board Consulting Agreement, dated
February
22, 2007.
(9)
|
10.16
|
|
Dr.
Edward Yu, Stock Option Grant, dated February 22, 2007.
(9)
|
10.17
|
|
Binding
Letter of Intent to purchase solar module manufacturing assets, dated
March 23, 2007.
(10)
|
10.18
|
|
Details
of $1.1 million dollar settlement received by XsunX, dated August
27,
2007.
(11)
|
10.19
|
|
Dr.
Richard Ahrenkiel, Scientific Advisory Board Consulting Agreement,
dated
April 23, 2007.
(12)
|
10.20
|
|
Dr.
Richard Ahrenkiel, Stock Option Grant, dated April 23, 2007.
(12)
|
10.21
|
|
Dr.
Michael Russak, Scientific Advisory Board Consulting Agreement, dated
August 28, 2007.
(13)
|
10.22
|
|
Dr.
Michael Russak, Stock Option Grant, dated August 28, 2007.
(13)
|
10.23
|
|
Fusion
Capital Fund II, LLC, Stock Purchase Agreement, dated November 1,
2007.
(14)
|
10.24
|
|
Fusion
Capital Fund II, LLC, Registration Rights Agreement, dated November
1,
2007.
(14)
|
10.25
|
|
Fusion
Capital Fund II, LLC, $.50 Warrant Agreement, dated November 1,
2007.
(14)
|
10.26
|
|
Fusion
Capital Fund II, LLC, $.75 Warrant Agreement, dated November 1,
2007.
(14)
|
10.27
|
|
Oz
Fundingsland, Stock Option Grant Agreement, dated November 12,
2007.
(15)
|
10.28
|
|
Dr.
Michael Russak, Stock Option Grant Agreement, dated November 28,
2007.
(16)
|
10.29
|
|
Joseph
Grimes, Incentive Stock Option Grant, dated October 23, 2007.
(17)
|
10.30
|
|
Robert
Wendt, Incentive Stock Option Grant, dated October 23, 2007.
(17)
|
10.31
|
|
Dr.
Guang Lin, Incentive Stock Option Grant, dated October 23,
2007.
(17)
|
10.32
|
|
Thomas
Anderson, Stock Option Grant, dated October 23, 2007.
(18)
|
31.1
|
|
Sarbanes-Oxley
Certification
|
31.2
|
|
Sarbanes-Oxley
Certification
|
32.1
|
|
Sarbanes-Oxley
Certification
|
32.2
|
|
Sarbanes-Oxley
Certification
|
|
(1)
|
Incorporated
by reference to Registration Statement Form 10SB12G #000-29621dated
February 18, 2000 and by reference to exhibits included with the
Company’s
prior Report on Form 8-K/A filed with the Securities and Exchange
Commission dated October 29, 2003.
|
|
|
|
|
(2)
|
Incorporated
by reference to Registration Statement Form 10SB12G #000-29621 filed
with
the Securities and Exchange Commission dated February 18, 2000.
|
|
(3)
|
Incorporated
by reference to exhibits included with the Company’s prior Report on Form
8-K/A filed with the Securities and Exchange Commission dated October
29,
2003.
|
|
(4)
|
Incorporated
by reference to exhibits included with the Company’s prior Report on Form
10-KSB filed with the Securities and Exchange Commission dated January
18,
2005.
|
|
(5)
|
Incorporated
by reference to exhibits included with the Company’s prior Report on Form
10-KSB filed with the Securities and Exchange Commission dated January
11,
2006.
|
|
(6)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
January
3, 2007.
|
|
(7)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
January
5, 2007.
|
|
(8)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
February
13, 2007.
|
|
(9)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
February
28, 2007.
|
|
(10)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
March 28,
2007.
|
|
(11)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
August
28, 2007.
|
|
(12)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
April 25,
2007.
|
|
(13)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
August
23, 2007.
|
|
(14)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K/A filed with the Securities and Exchange Commission dated
November 5, 2007.
|
|
(15)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
November
14, 2007.
|
|
(16)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
November
28, 2007.
|
|
(17)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
October
29, 2007.
|
|
(18)
|
Incorporated
by reference to exhibits included with the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission dated
October
29, 2007.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
Date:
March
28, 2008
|
XSUNX,
INC.
|
|
|
|
|
By:
|
/s/
Tom Djokovich
|
|
Name:
|
Tom
Djokovich
|
|
Title:
|
President
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/
Tom Djokovich
|
|
March
28, 2008
|
Tom
Djokovich, President, Chief Executive Officer,
Principal
Executive Officer and Director
|
|
|
|
|
|
/s/
Jeff Huitt
|
|
March
28, 2008
|
Jeff
Huitt, Chief Financial Officer and Principal
Financial
and Accounting Officer
|
|
|
INDEPENDENT
AUDITOR'S REPORT
Board
of
Directors
XSUNX,
INC.
Aliso
Viejo, CA
We
have
audited the accompanying balance sheets of XSUNX, Inc., (formerly Sun River
Mining, Inc.) (A Development Stage Company) as of September 30, 2004 and 2003,
and the related statements of operations, cash flows, and stockholders' equity
for the years ended September 30, 2004 and 2003 and for the period from February
25, 1997 (inception) to September 30, 2004. These financial statements are
the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audits.
We
conducted our audits “in accordance with the standards of the Public Company
Accounting Oversight Board (United States)” as outlined in PCAOB Auditing
Standard No. 1. Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of XSUNX, INC., (formerly Sun River
Mining, Inc.) at September 30, 2004 and 2003 and the results of their operations
and their cash flows for the years ended September 30, 2004 and 2003 and for
the
period from February 25, 1997 (inception) to September 30, 2004 in conformity
with accounting principles generally accepted in the United States.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, conditions exist which raise substantial doubt about the Company's
ability to continue as a going concern unless it is able to generate sufficient
cash flows to meet its obligations and sustain its operations. Management's
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
/s/
Michael Johnson & Co., LLC
Michael
Johnson & Co., LLC
Denver,
Colorado
February
24, 2005
May
5,
2005
XSUNX,
INC.
(A
Development Stage Company)
FINANCIAL
STATEMENTS
September
30, 2007, 2006 and 2005
JASPERS
+ HALL, PC
CERTIFIED
PUBLIC ACCOUNTANTS
9175
E. Kenyon Avenue, Suite 100
Denver,
CO 80237
303-796-0099
REPORT
OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
Board
of
Directors
XSUNX,
INC.
Aliso
Viejo, CA
We
have
audited the accompanying balance sheets of XSUNX, Inc., (formerly Sun River
Mining, Inc). (A Development Stage Company) as of September 30, 2005, 2006,
and
2007, and the related statements of operations, cash flows, and stockholders’
equity for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of XSUNX, INC., (formerly Sun River
Mining, Inc.) at September 30, 2005, 2006, and 2007 and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
The
financial statements for the period February 25, 1997 (inception) to September
30, 2004, were audited by other accountants, whose report dated May 5, 2005
expressed an unqualified opinion on those statements. They have not performed
any auditing procedures since that date and our opinion, insofar as it relates
to those amounts, is based solely on the report of the other auditors.
.
Denver,
CO
December
28, 2007
/s/
Jaspers + Hall, PC
Jaspers
+
Hall, PC
Denver,
Colorado
December
28, 2007
XSUNX,
INC.
(A
Development Stage Company)
BALANCE
SHEETS
|
|
(Audited)
September 30,
2007
|
|
(Audited)
September 30,
2006
|
|
(Audited)
September 30,
2005
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,773,748
|
|
$
|
4,305,105
|
|
$
|
175,869
|
|
Prepaid
Expenses
|
|
|
54,377
|
|
|
349,118
|
|
|
79,984
|
|
Total
current assets
|
|
|
1,828,125
|
|
|
4,654,223
|
|
|
255,853
|
|
Fixed
assets:
|
|
|
|
|
|
|
|
|
|
|
Office
& Misc. Equipment
|
|
|
39,437
|
|
|
9,774
|
|
|
2,270
|
|
Research
and Development Equipment
|
|
|
532,795
|
|
|
392,301
|
|
|
181,995
|
|
Leasehold
Improvement
|
|
|
89,825
|
|
|
80,492
|
|
|
|
|
Total
Fixed Assets
|
|
|
662,057
|
|
|
482,567
|
|
|
184,265
|
|
Less
Depreciation
|
|
|
(162,189
|
)
|
|
(84,941
|
)
|
|
(18,434
|
)
|
Total
fixed assets
|
|
|
499,868
|
|
|
397,626
|
|
|
165,831
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
Patents/Trade
Marks
|
|
|
|
|
|
40,000
|
|
|
20,000
|
|
Security
Deposit
|
|
|
5,815
|
|
|
2,615
|
|
|
|
|
Accrued
Interest Receivable
|
|
|
143,452
|
|
|
|
|
|
|
|
Note
Receivable
|
|
|
1,500,000
|
|
|
|
|
|
|
|
Marketable
Prototype
|
|
|
1,765,000
|
|
|
1,765,000
|
|
|
|
|
Total
other assets
|
|
|
3,414,267
|
|
|
1,807,615
|
|
|
20,000
|
|
Total
Assets
|
|
$
|
5,742,260
|
|
$
|
6,859,464
|
|
$
|
441,684
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
259,652
|
|
$
|
582,161
|
|
$
|
78,377
|
|
Accrued
Expenses
|
|
|
53,036
|
|
|
6,538
|
|
|
45,856
|
|
Current
Portion of Note Payable
|
|
|
|
|
|
|
|
|
850,000
|
|
Total
current liabilities
|
|
|
312,688
|
|
|
588,699
|
|
|
974,233
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, par value $0.01 per share; 50,000,000 shares authorized; no
shares
issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
Treasury
Stock, no par value; no shares where issued or
outstanding
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, no par value; 500,000,000 shares authorized; 157,919,856 shares
issued and outstanding at September 30, 2007 and 157,019,856 shares
were
issued and outstanding at September 30, 2006
|
|
|
13,563,869
|
|
|
13,290,869
|
|
|
3,996,735
|
|
Paid
in Capital — Common Stock Warrants
|
|
|
2,326,553
|
|
|
2,151,250
|
|
|
1,200,000
|
|
Deficit
accumulated during the development stage
|
|
|
(10,460,850
|
)
|
|
(9,171,354
|
)
|
|
(5,729,284
|
)
|
Total
stockholders’ profit (deficit)
|
|
|
5,429,572
|
|
|
6,270,765
|
|
|
(532,549
|
)
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
5,742,260
|
|
$
|
6,859,464
|
|
$
|
441,684
|
|
The
Accompanying Notes Are an Integral Part of These Financial
Statements.
XSUNX,
INC.
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
(Audited)
|
|
Years Ended September 30,
|
|
Feb.
25, 1997
(Inception)
to
September 30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
Income
|
|
$
|
6,880
|
|
$
|
8,000
|
|
|
|
|
$
|
14,880
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Total
Revenue
|
|
|
6,880
|
|
|
8,000
|
|
|
—
|
|
|
14,880
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
47,573
|
|
|
9,050
|
|
|
3,979
|
|
|
60,602
|
|
Bank
Charges
|
|
|
973
|
|
|
294
|
|
|
500
|
|
|
3,880
|
|
Conferences
& Seminars
|
|
|
14,725
|
|
|
11,267
|
|
|
25,992
|
|
|
|
|
Consulting
|
|
|
117,751
|
|
|
47,850
|
|
|
320,944
|
|
|
1,510,584
|
|
Depreciation
|
|
|
77,248
|
|
|
82,941
|
|
|
18,435
|
|
|
181,802
|
|
Directors’
Fees
|
|
|
|
|
|
|
|
|
|
|
|
11,983
|
|
Due
Diligence
|
|
|
|
|
|
|
|
|
|
|
|
45,832
|
|
Equipment
Rental
|
|
|
|
|
|
|
|
|
|
|
|
1,733
|
|
Filing
Fees
|
|
|
2,185
|
|
|
4,625
|
|
|
1,800
|
|
|
8,610
|
|
Impairment
loss
|
|
|
923,834
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
66,856
|
|
|
2,705
|
|
|
758
|
|
|
70,319
|
|
Legal
& Accounting
|
|
|
302,478
|
|
|
140,293
|
|
|
107,249
|
|
|
738,380
|
|
Licenses
& Fees
|
|
|
90
|
|
|
20
|
|
|
25
|
|
|
6,545
|
|
Loan
Fees
|
|
|
|
|
|
628,834
|
|
|
115,000
|
|
|
741,834
|
|
Meals
& Entertainment
|
|
|
|
|
|
|
|
|
|
|
|
4,119
|
|
Miscellaneous
|
|
|
1,691
|
|
|
1,882
|
|
|
1,675
|
|
|
7,378
|
|
Office
Expenses
|
|
|
15,086
|
|
|
4,581
|
|
|
2,634
|
|
|
41,500
|
|
Patent
Fees
|
|
|
1,181
|
|
|
625
|
|
|
663
|
|
|
2,469
|
|
Postage
& Shipping
|
|
|
8,327
|
|
|
1,123
|
|
|
2,161
|
|
|
14,828
|
|
Printing
|
|
|
9,860
|
|
|
8,730
|
|
|
4,300
|
|
|
28,470
|
|
Public
Relations
|
|
|
79,831
|
|
|
182,151
|
|
|
116,413
|
|
|
489,361
|
|
Recruitment
Expenses
|
|
|
47,064
|
|
|
|
|
|
|
|
|
47,064
|
|
Research
& Development
|
|
|
435,534
|
|
|
949,472
|
|
|
501,423
|
|
|
2,015,922
|
|
Rent
|
|
|
66,702
|
|
|
19,858
|
|
|
9,000
|
|
|
112,523
|
|
Salaries
|
|
|
828,711
|
|
|
275,089
|
|
|
155,236
|
|
|
1,759,122
|
|
Subscription
Reports
|
|
|
6,103
|
|
|
2,895
|
|
|
860
|
|
|
9,858
|
|
Taxes
|
|
|
4,180
|
|
|
|
|
|
|
|
|
8,837
|
|
Telephone
|
|
|
22,301
|
|
|
12,318
|
|
|
5,489
|
|
|
74,923
|
|
Transfer
Agent Expense
|
|
|
|
|
|
411
|
|
|
3,628
|
|
|
20,365
|
|
Travel,
Meals & Entertainment
|
|
|
158,503
|
|
|
41,823
|
|
|
11,234
|
|
|
274,493
|
|
Utilities
|
|
|
8,103
|
|
|
|
|
|
|
|
|
8,103
|
|
Abandoned
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
808
|
|
Option/Warrant
Expense
|
|
|
325,303
|
|
|
951,250
|
|
|
|
|
|
2,476,553
|
|
Total
Operating Expenses
|
|
|
2,648,359
|
|
|
3,380,087
|
|
|
1,383,406
|
|
|
11,728,626
|
|
The
Accompanying Notes Are an Integral Part of These Financial
Statements.
|
|
Years Ended September 30,
|
|
Feb. 25, 1997
(Inception) to
September 30,
2007
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Other
(Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
1,197
|
|
|
158,333
|
|
|
17,433
|
|
|
248,560
|
|
Interest
Income
|
|
|
(253,179
|
)
|
|
(88,480
|
)
|
|
|
|
|
(341,682
|
)
|
Legal
Settlement
|
|
|
(1,100,000
|
)
|
|
|
|
|
|
|
|
(1,100,000
|
)
|
Forgiveness
of Debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(59,773
|
)
|
Total
Other Income/Expense
|
|
|
(1,351,982
|
)
|
|
69,853
|
|
|
17,433
|
|
|
(1,252,895
|
)
|
Net
(Loss)
|
|
$
|
(1,289,497
|
)
|
$
|
(3,441,940
|
)
|
$
|
(1,400,839
|
)
|
$
|
(10,460,850
|
)
|
Per
Share Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
156,680,076
|
|
|
138,005,964
|
|
|
123,854,733
|
|
|
|
|
Net
Loss per Common Share
|
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
|
|
|
The
Accompanying Notes Are an Integral Part of These Financial
Statements.
XSUNX,
INC.
(A
Development Stage Comapny)
STATEMENT
OF STOCKHOLDERS’ EQUITY (Deficit)
September
30, 2007
(Audited)
|
|
Treasury Stock
|
|
Common Stock
|
|
Paid in
Capital
Common
Stock
Warrants
|
|
Deficit
Accumulated
During
the
Exploration
Stage
|
|
Totals
|
|
|
|
# of Shares
|
|
Amount
|
|
#
of Shares
|
|
Amount
|
|
Inception
February 25, 1997
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of stock for cash
|
|
|
—
|
|
|
—
|
|
|
15,880
|
|
|
217,700
|
|
|
—
|
|
|
—
|
|
|
217,700
|
|
Issuance
of stock to Founders
|
|
|
—
|
|
|
—
|
|
|
14,110
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of stock for consolidation
|
|
|
—
|
|
|
—
|
|
|
445,000
|
|
|
312,106
|
|
|
—
|
|
|
—
|
|
|
312,106
|
|
Net
Loss for Year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(193,973
|
)
|
|
(193,973
|
)
|
Balance — September
30, 1997
|
|
|
—
|
|
|
—
|
|
|
474,990
|
|
|
529,806
|
|
|
—
|
|
|
(193,973
|
)
|
|
335,834
|
|
Issuance
of stock for services
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
30,000
|
|
|
—
|
|
|
—
|
|
|
30,000
|
|
Issuance
of stock for cash
|
|
|
—
|
|
|
—
|
|
|
50,200
|
|
|
204,000
|
|
|
—
|
|
|
—
|
|
|
204,000
|
|
Consolidation
stock cancelled
|
|
|
—
|
|
|
—
|
|
|
(60,000
|
)
|
|
(50,000
|
)
|
|
—
|
|
|
—
|
|
|
(50,000
|
)
|
Net
Loss for Year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(799,451
|
)
|
|
(799,451
|
)
|
Balance — September
30, 1998
|
|
|
—
|
|
|
—
|
|
|
466,690
|
|
|
713,806
|
|
|
—
|
|
|
(993,424
|
)
|
|
(279,618
|
)
|
Issuance
of stock for cash
|
|
|
—
|
|
|
—
|
|
|
151,458
|
|
|
717,113
|
|
|
—
|
|
|
—
|
|
|
717,113
|
|
Issuance
of stock for services
|
|
|
—
|
|
|
—
|
|
|
135,000
|
|
|
463,500
|
|
|
—
|
|
|
—
|
|
|
463,500
|
|
Net
Loss for Year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,482,017
|
)
|
|
(1,482,017
|
)
|
Balance — September
30, 1999
|
|
|
—
|
|
|
—
|
|
|
753,148
|
|
|
1,894,419
|
|
|
—
|
|
|
(2,475,441
|
)
|
|
(581,022
|
)
|
Issuance
of stock for cash
|
|
|
—
|
|
|
—
|
|
|
15,000
|
|
|
27,000
|
|
|
—
|
|
|
—
|
|
|
27,000
|
|
Net
Loss for year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(118,369
|
)
|
|
(118,369
|
)
|
Balance — September
30, 2000
|
|
|
—
|
|
|
—
|
|
|
768,148
|
|
|
1,921,419
|
|
|
—
|
|
|
(2,593,810
|
)
|
|
(672,391
|
)
|
Extinguishment
of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
337,887
|
|
|
—
|
|
|
—
|
|
|
337,887
|
|
Net
Loss for year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,402
|
)
|
|
(32,402
|
)
|
Balance — September
30, 2001
|
|
|
—
|
|
|
—
|
|
|
768,148
|
|
|
2,259,306
|
|
|
—
|
|
|
(2,626,212
|
)
|
|
(366,906
|
)
|
Net
Loss for year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47,297
|
)
|
|
(47,297
|
)
|
Balance — September
30, 2002
|
|
|
—
|
|
|
—
|
|
|
768,148
|
|
|
2,259,306
|
|
|
—
|
|
|
(2,673,509
|
)
|
|
(414,203
|
)
|
Issuance
of stock for Assets
|
|
|
—
|
|
|
—
|
|
|
70,000,000
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Issuance
of stock for Cash
|
|
|
—
|
|
|
—
|
|
|
9,000,000
|
|
|
225,450
|
|
|
—
|
|
|
—
|
|
|
225,450
|
|
Issuance
of stock for Debt
|
|
|
—
|
|
|
|
|
|
115,000
|
|
|
121,828
|
|
|
—
|
|
|
—
|
|
|
121,828
|
|
Issuance
of stock for Expenses
|
|
|
—
|
|
|
—
|
|
|
115,000
|
|
|
89,939
|
|
|
—
|
|
|
—
|
|
|
89,939
|
|
Issuance
of stock for Services
|
|
|
—
|
|
|
—
|
|
|
31,300,000
|
|
|
125,200
|
|
|
—
|
|
|
—
|
|
|
125,200
|
|
Net
Loss for year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(145,868
|
)
|
|
(145,868
|
)
|
Balance — September
30, 2003
|
|
|
—
|
|
|
—
|
|
|
111,298,148
|
|
|
2,821,726
|
|
|
—
|
|
|
(2,819,377
|
)
|
|
2,350
|
|
Issuance
of stock for cash
|
|
|
—
|
|
|
—
|
|
|
2,737,954
|
|
|
282,670
|
|
|
—
|
|
|
—
|
|
|
282,670
|
|
Issuance
of Common Stock Warrants
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,200,000
|
|
|
—
|
|
|
1,200,000
|
|
The
Accompanying Notes Are an Integral Part of These Financial
Statements.
|
|
Treasury
Stock
|
|
Common Stock
|
|
Paid in
Capital
Common
Stock
Warrants
|
|
Deficit
Accumulated
During
the
Exploration
Stage
|
|
Totals
|
|
|
|
#
of Shares
|
|
Amount
|
|
# of Shares
|
|
Amount
|
|
Net
Loss for Year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,509,068
|
)
|
|
(1,509,068
|
)
|
Balance — September
30, 2004
|
|
|
|
|
|
|
|
|
114,036,102
|
|
|
3,104,396
|
|
|
1,200,000
|
|
|
(4,328,445
|
)
|
|
(24,049
|
)
|
Issuance
of stock for cash
|
|
|
—
|
|
|
—
|
|
|
6,747,037
|
|
|
531,395
|
|
|
—
|
|
|
—
|
|
|
531,395
|
|
Issuance
of stock for services
|
|
|
—
|
|
|
—
|
|
|
3,093,500
|
|
|
360,945
|
|
|
—
|
|
|
—
|
|
|
360,945
|
|
Issuance
of stock for collateral
|
|
|
26,798,418
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
Loss for Year
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,400,839
|
)
|
|
(1,400,839
|
)
|
Balance — September
30, 2005
|
|
|
26,798,418
|
|
|
—
|
|
|
123,876,639
|
|
|
3,996,735
|
|
|
1,200,000
|
|
|
(5,729,284
|
)
|
|
(532,549
|
)
|
Issuance
of stock for services
|
|
|
—
|
|
|
—
|
|
|
72,366
|
|
|
31,500
|
|
|
—
|
|
|
—
|
|
|
31,500
|
|
Issuance
of Common Stock Warrants
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
951,250
|
|
|
—
|
|
|
951,250
|
|
Issuance
of stock for debenture conversion
|
|
|
—
|
|
|
—
|
|
|
21,657,895
|
|
|
5,850,000
|
|
|
|
|
|
|
|
|
5,850,000
|
|
Issuance
of stock for interest expense
|
|
|
—
|
|
|
—
|
|
|
712,956
|
|
|
241,383
|
|
|
|
|
|
|
|
|
241,383
|
|
Issuance
of stock for warrant conversion
|
|
|
—
|
|
|
—
|
|
|
10,850,000
|
|
|
3,171,250
|
|
|
|
|
|
|
|
|
3,171,250
|
|
Net
Loss for Year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,441,940
|
)
|
|
(3,441,940
|
)
|
Balance
September 30, 2006
|
|
|
26,798,418
|
|
|
—
|
|
|
157,169,856
|
|
|
13,290,869
|
|
|
2,151,250
|
|
|
(9,171,354
|
)
|
|
6,270,765
|
|
Cancelation
of Stock for Services Returned
|
|
|
|
|
|
|
|
|
(150,000
|
)
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
(12,000
|
)
|
Release
of Security Collateral
|
|
|
(26,798,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Stock for Warrants - Jim Bentley
|
|
|
|
|
|
|
|
|
900,000
|
|
|
285,000
|
|
|
(150,000
|
)
|
|
|
|
|
135,000
|
|
Stock
Option/Warrant Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,303
|
|
|
|
|
|
325,303
|
|
Net
Loss for Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,289,497
|
)
|
|
(1,289,497
|
)
|
Balance
September 30, 2007
|
|
|
—
|
|
$
|
—
|
|
|
157,919,856
|
|
$
|
13,563,869
|
|
$
|
2,326,553
|
|
$
|
(10,460,850
|
)
|
|
5,429,572
|
|
The
Accompanying Notes Are an Integral Part of These Financial
Statements.
XSUNX,
INC.
(A
Development Stage Company)
STATEMENT
OF CASH FLOWS
(Audited)
|
|
Years
Ended September 30,
|
|
Feb. 25, 1997
(Inception) to
September 30,
2007
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,289,497
|
)
|
$
|
(3,441,940
|
)
|
$
|
(1,400,839
|
)
|
$
|
(10,460,850
|
)
|
Issuance
of Common Stock for Services
|
|
|
(12,000
|
)
|
|
31,500
|
|
|
50,827
|
|
|
1,336,998
|
|
Issuance
of Common Stock for Loan
Inducement
|
|
|
|
|
|
|
|
|
310,117
|
|
|
310,117
|
|
Option/Warrant
Expense
|
|
|
325,303
|
|
|
951,250
|
|
|
|
|
|
2,476,553
|
|
Issuance
of Stock for Interest
|
|
|
|
|
|
241,383
|
|
|
|
|
|
241,383
|
|
Depreciation
|
|
|
77,248
|
|
|
82,941
|
|
|
18,435
|
|
|
162,189
|
|
Adjustments
to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
(Increase)
in Deferred Financing Costs
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
(Increase)
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
(Increase)
Security Deposit
|
|
|
(3,200
|
)
|
|
(2,615
|
)
|
|
|
|
|
(5,815
|
)
|
(Increase)
in Prepaid Expense
|
|
|
294,741
|
|
|
(269,133
|
)
|
|
(60,115
|
)
|
|
(54,377
|
)
|
(Decrease)
in Accounts Payable
|
|
|
(322,509
|
)
|
|
503,784
|
|
|
(10,653
|
)
|
|
259,652
|
|
Increase
(Decrease) in Accrued Liabilities
|
|
|
86,498
|
|
|
(39,448
|
)
|
|
42,578
|
|
|
53,036
|
|
Net
Cash Flows Used for Operating Activities
|
|
|
(843,416
|
)
|
|
(1,942,278
|
)
|
|
(1,049,650
|
)
|
|
(5,681,114
|
)
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of Fixed Assets
|
|
|
(179,490
|
)
|
|
(314,736
|
)
|
|
(181,995
|
)
|
|
(662,057
|
)
|
Purchase
of Marktable Prototype and Patent
|
|
|
—
|
|
|
(1,785,000
|
)
|
|
(10,000
|
)
|
|
(1,765,000
|
)
|
Note
Receivable
|
|
|
(1,500,000
|
)
|
|
|
|
|
|
|
|
(1,500,000
|
)
|
Accrued
Interest earned
|
|
|
(143,452
|
)
|
|
|
|
|
|
|
|
(143,452
|
)
|
Net
Cash Flows Used for Investing Activities
|
|
|
(1,822,942
|
)
|
|
(2,099,736
|
)
|
|
(191,995
|
)
|
|
(4,070,509
|
)
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Notes Payable — Stockholder
|
|
|
|
|
|
|
|
|
3,775
|
|
|
—
|
|
Payment
for Note Payable — Stockholder
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
—
|
|
Proceeds
from Warrant Conversion
|
|
|
|
|
|
3,171,250
|
|
|
|
|
|
3,171,250
|
|
Procceds
from Debenture Conversion
|
|
|
|
|
|
5,000,000
|
|
|
|
|
|
5,000,000
|
|
Proceeds
from Convertible Debt
|
|
|
|
|
|
|
|
|
850,000
|
|
|
—
|
|
Issuance
of Common Stock for Warrants
|
|
|
135,000
|
|
|
|
|
|
|
|
|
135,000
|
|
Issuance
of Common Stock for cash
|
|
|
|
|
|
|
|
|
531,395
|
|
|
3,219,121
|
|
Net
Cash Flows Provided by Financing Activities
|
|
|
135,000
|
|
|
8,171,250
|
|
|
1,380,170
|
|
|
11,525,371
|
|
Net
Increase (Decrease) in Cash
|
|
|
(2,531,358
|
)
|
|
4,129,236
|
|
|
138,525
|
|
|
1,773,748
|
|
Cash
and cash equivalents — Beginning of period
|
|
|
4,305,105
|
|
|
175,869
|
|
|
37,344
|
|
|
—
|
|
Cash
and cash equivalents — End of period
|
|
$
|
1,773,748
|
|
$
|
4,305,105
|
|
$
|
175,869
|
|
$
|
1,773,748
|
|
The
Accompanying Notes Are an Integral Part of These Financial
Statements.
|
|
Years Ended September 30,
|
|
Feb. 25, 1997
(Inception) to
September 30,
2007
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Supplemental Disclosure of Cash
Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid During the Year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,197
|
|
|
|
|
|
|
|
$
|
72,543
|
|
Income
Taxes
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
NON-CASH
TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued (returned) in exchange for services
|
|
$
|
(12,000
|
)
|
$
|
31,500
|
|
$
|
50,827
|
|
$
|
1,336,998
|
|
Conversion
of debt for Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Loan Inducement
|
|
|
|
|
|
|
|
$
|
310,117
|
|
$
|
310,117
|
|
Common
Stock Issued for Interest
|
|
|
|
|
$
|
241,383
|
|
|
|
|
$
|
241,383
|
|
The
Accompanying Notes Are an Integral Part of These Financial
Statements.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
1 — Organization:
XsunX,
Inc. (“XsunX,” the “Company” or the “issuer”) is a Colorado corporation formerly
known as Sun River Mining Inc. “Sun River”). The Company was originally
incorporated in Colorado on February 25, 1997. Effective September 24, 2003,
the
Company completed a Plan of Reorganization and Asset Purchase Agreement (the
“Plan”).
Pursuant
to the Plan the Company acquired the following three patents from Xoptix, Inc.,
a California corporation for Seventy Million (70,000,000) shares (post reverse
split one for twenty): No. 6,180,871 for Transparent Solar Cell and Method
of
Fabrication (Device), granted on January 30, 2001; No. 6,320,117 for Transparent
Solar Cell and Method of Fabrication (Method of Fabrication), granted on
November 20, 2001; and No. 6,509,204 for Transparent Solar Cell and Method
of
Fabrication (formed with a Schottky barrier diode and method of its
manufacture), granted on January 21, 2003.
Pursuant
to the Plan, the Company authorized the issuance of 110,530,000 (post reverse
split) common shares. Prior to the Plan the Company had no tangible assets
and
insignificant liabilities. Subsequent to the Plan, the Company completed its
name change from Sun River Mining, Inc. to XsunX, Inc. The transaction was
completed on September 30, 2003.
XsunX,
Inc. is a thin-film photovoltaic “TFPV” company that has spent the last three
years in focused research with a photovoltaic material called Amorphous Silicon.
During this time, the Company has developed the technical capabilities,
qualified core staff, and market understanding that it believes will be
necessary to complete the development of its products and establish product
manufacturing infrastructure. The products that the Company intends to produce
and market are amorphous silicon solar modules on glass panels.
Utilizing
this experience and the collective body of intellectual property we have
developed, or evaluated as suitable or advantageous for use, we have designed
a
120 watt thin film amorphous silicon solar module and a proprietary
semiconductor manufacturing system to produce these modules in commercial
quantities. We anticipate the manufacture of our solar modules, employing the
design of our high-throughput production lines in an automated continuous
process, will provide manufacturing costs significantly less than those of
traditional crystalline silicon solar module manufacturers, and be highly
competitive with other thin film offerings.
The
company has included the audit report of our prior auditor, Michael Johnson
and
Co., LLC for the years ending September 30, 2003 and 2004. This audit
report was relied upon by our current auditors, Jaspers+Hall to express an
opinion on the financial statements from inception (February 25, 1997) to
date. The going concern opinion in the Michael Johnson audit relate to the
fiscal year ended September 30, 2004 which was appropriate for that
period. The more audit opinions relating to the fiscal year ended
September 30, 2007 does not include a going concern opinion.
Note
2 — Summary of Significant Accounting Policies:
Basis
of Presentation — Development Stage Company
The
Company has not earned any revenues from operations. Accordingly, the Company’s
activities have been accounted for as those of a “Development Stage Enterprise”
as set forth in Financial Accounting Standards Board Statement No. 7 (“SFAS 7”).
Among the disclosures required by SFAS 7 are that the Company’s financial
statements be identified as those of a development stage company, and that
the
statements of operations, stockholders’ equity (deficit) and cash flows disclose
activity since the date of the Company’s inception.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
2 — Summary of Significant Accounting
Policies: – (continued)
The
accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States.
Cash
and Cash Equivalents
For
purposes of the statements of cash flows, cash and cash equivalents include
cash
in banks and money markets with an original maturity of three months or less.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. Significant
estimates made in preparing these financial statements include the estimate
for
the useful life of property and equipment, and the fair value of stock warrants.
Actual results could differ from those
Fair
Value of Financial Instruments
The
Company’s financial instruments, including cash and cash equivalents, accounts
payable and accrued liabilities are carried at cost, which approximates their
fair value, due to the relatively short maturity of these instruments. As of
September 30, 2007, 2006 and 2005, the Company’s notes payable have stated
borrowing rates that are consistent with those currently available to the
Company and, accordingly, the Company believes the carrying value of these
debt
instruments approximates their fair value.
Property
and Equipment
Property
and equipment are stated at cost, and are depreciated or amortized using the
straight-line method over the following estimated useful lives:
Furniture,
fixtures & equipment
|
|
5
years
|
Computer
equipment
|
|
3
years
|
Commerce
server
|
|
3
years
|
Computer
software
|
|
3
years
|
Leasehold
improvements
|
|
Length
of the lease
|
The
Company capitalizes property and equipment over $500. Property and equipment
under $500 are expensed in the year purchased.
Net
Earnings (Loss) per Share
Basic
loss per share is computed on the basis of the weighted average number of common
shares outstanding. For all periods, all of the Company’s common stock
equivalents were excluded from the calculation of diluted loss per common share
because they were anti-dilutive, due to the Company’s net losses. There are
17,312,000 issued options/warrants outstanding as of September 30, 2007 that
are
potentially dilutive of which 8,768,167 are currently vested.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
2 — Summary of Significant Accounting
Policies: – (continued)
Advertising
Advertising
costs are expensed as incurred. Total advertising costs were $47,573, $9,050
and
$3,979 for the years ended September 30, 2007, 2006 and 2005, respectively.
Research
and Development
Research
and development costs are expensed as incurred. Total research and development
costs were $435,534, $949,472 and $501,423 for the years ended September 30,
2007, 2006 and 2005, respectively.
Other
Comprehensive Income
The
Company has no components of other comprehensive income (loss) and accordingly,
net loss is equal to comprehensive loss in all periods.
Stock
Based Compensation
XsunX
records the fair value of stock-based compensation grants as an expense. In
order to determine the fair value of stock options on the date of grant. XsunX
applies the Black-Scholes option-pricing model. Inherent in this model are
assumptions related to expected stock-price volatility, option life, risk-free
interest rate and dividend yield. While the risk-free interest rate and dividend
yield are less subjective assumptions, typically based on factual data derived
from public sources, the expected stock-price volatility and option life
assumptions require a greater level of judgment.
XsunX
uses an expected stock-price volatility assumption that is based on historical
implied volatilities of the underlying stock which is obtained from public
data
sources. With regard to the weighted-average option life assumption. XsunX
considers the exercise behavior of past grants and models the pattern of
aggregate exercises. Patterns are determined on specific criteria of the
aggregate pool of optionees. Forfeiture rates are based on the Company’s
historical data and future estimates for stock option forfeitures. There are
17,312,000 options and warrants issued of which 8,768,167 are vested. The
exercise price range for the Company’s options and warrants are $0.15 to $1.69.
The weighted average remaining life of the option and warrant grants range
from
.3 years to 4.9 years. We have based our expected volatility on the historical
performance of our stock adjusted for extreme periods of volatility that
resulted from unusual events. The range of volatility for our options and
warrants is 53 to 86 based on the specific grant. The risk free interest rate
used in our calculation was 3.54%. Total net stock-based compensation expense
is
attributable to the granting of and the remaining requisite service periods
of
stock options previously granted. Compensation expense attributable to net
stock-based compensation in fiscal 2007 was $325,303, increasing basic loss
$.002 per share.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
3 — Federal Income Tax:
The
Company accounts for income taxes under SFAS No. 109, which requires the
asset
and liability approach to accounting for income taxes. Under this approach,
deferred income taxes are determined based upon differences between the
financial statement and tax bases of the Company’s assets and liabilities and
operating loss carry forwards using enacted tax rates in effect for the year
in
which the differences are expected to reverse. The approximate tax effect
used
in these calculations is 40%. Deferred tax assets are recognized if it is
more
likely than not that the future tax benefit will be realized. The Company
is a
Development Stage Company and the likelihood of its ability to utilize the
deferred tax asset that arises from the operating loss carry forwards can’t be
reasonably estimated. The company has created a valuation allowance equal
to
100% of the deferred tax asset arising from the
operating
loss carryforwards as a result of this inability to estimate whether or not
the
asset can be utilized in future periods.
Significant
components of the Company’s deferred tax liabilities and assets are as follows:
The deferred tax assets are composed of the Company’s net operating loss carry
forwards of approximately $10,960,721 at the approximate tax effect of 40%.
There are no other material deferred tax assets or liabilities of the Company
as
of September 30, 2007.
|
|
2007
|
|
2006
|
|
2005
|
|
Deferred
Tax Assets
|
|
$
|
4,384,288
|
|
$
|
3,858,490
|
|
$
|
2,291,714
|
|
Deferred
Tax Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$
|
4,384,288
|
|
$
|
3,858,490
|
|
$
|
2,291,714
|
|
Net
Deferred tax assets
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
At
September 30, 2007, the Company had net operating loss carry forwards of
approximately, $10,960,721 for federal income tax purposes. These carry forwards
if not utilized to offset taxable income will begin to expire in 2010.
Note
4 — Capital Stock Transactions:
The
authorized capital stock of the Company was established at 500,000,000 shares
with no par value.
In
the
fiscal year ended September 30, 2005, the Company issued a total of 9,818,631
shares of common stock as follows: 6,735,137 shares of common stock were
issued,
raising gross proceeds of $531,396; 474,231 shares of common stock were issued
in transactions for consulting services valued at $40,000; and 2,609,263
shares
of common stock were issued in connection with the sale of an $850,000 secured
convertible debenture by the Company.
In
the
fiscal year ended September 30, 2006, the Company issued a total of 33,293,217
shares of common stock as follows: 33,120,851 shares of common stock registered
pursuant to an effective registration statement were issued pursuant to the
conversion of secured convertible debentures, raising gross proceeds of
$9,294,133; 72,366 shares of common stock were issued for consulting services
valued at $31,500; and 100,000 shares of common stock were issued in connection
with the exercise of 100,000 warrants bearing an exercise price of $.15 each.
The
following represents a detailed analysis of the 2007 capital stock transactions.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
4 — Capital Stock Transactions: - (continued)
Return
of
Shares for Services — In December 2006, the Company entered into a
settlement agreement with a service provider in which the service provider
returned to the Company 150,000 of the 300,000 shares of common stock issued
to
the service provider in the period ended March 31, 2005. The returned shares
were received and cancelled effective January 2007. As a result of the return
and cancellation of these shares, the Company recorded a credit to expenses
in
the amount of $12,000 and a debit to paid in capital of $12,000 for the period
ending March 31, 2007. The $12,000 represents one half of the monetary value
expensed by the Company in the period in which the shares were issued.
Return
of
Security Shares — In conjunction with the sale of convertible
debentures in the amount of $850,000 and $5,000,000 in the fiscal periods
ended
December 31, 2005 and 2006 respectively, the Company issued and deposited
into
escrow 26,798,418 shares of common stock as part of a security structure
for the
above referenced obligations. As of September 30, 2006 the principal balance
of
the debentures had been reduced to $0.0. Subsequently the holder of the
debentures provided the Company with a notice of release of its security
interests and returned the security shares to the Company for cancellation.
On
January 18, 2007 the above shares were cancelled on the Company’s
books.
Issuance
of Shares — Warrant Conversion — In September 2007, a
consultant exercised the remaining 900,000 of the 1,000,000 $.15 cent warrants
granted to the consultant in September 2004. The amount of $135,000 was paid
to
XsunX by the consultant and 900,000 shares of unregistered common stock were
issued.
Note
5 — Employment and Consulting Agreements:
Effective
January 1, 2007, XsunX, Inc. entered into two year Employment Agreements
with
the following individuals:
Joseph
Grimes
|
|
|
Chief
Operating Officer
|
|
$
|
150,000.00
|
|
Jeff
Huitt
|
|
|
Chief
Financial Officer
|
|
$
|
135,000.00
|
|
Robert
Wendt
|
|
|
Vice
President of Engineering
|
|
$
|
150,000.00
|
|
Kurt
Laetz
|
|
|
Vice
President of Global Sales
|
|
$
|
120,000.00
|
(1)
|
|
(1)
|
Effective
September 2007 Kurt Laetz terminated his employment agreement and
employment with the Company.
|
Effective
January 26, 2007, XsunX entered into a two year Consulting and Advisory
Agreement with Dr. John Moore to become the Chairman of the Company’s Scientific
Advisory Board. The Company compensates Dr. Moore $1,500 per month for his
services.
Effective
February 22, 2007, XsunX entered into a two year Consulting and Advisory
Agreement with Dr. Edward Yu to become a member of the Company’s Scientific
Advisory Board. The Company compensates Dr. Moore $1,000 per month for his
services.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
5 — Employment and Consulting Agreements: -
(Continued)
Effective
April 23, 2007, XsunX entered into a two year Consulting and Advisory Agreement
with Dr. Richard Ahrenkiel to become a member of the Company’s Scientific
Advisory Board. The Company compensates Dr. Moore $1,000 per month for his
services.
Effective
August 28, 2007, XsunX entered into a two year Consulting and Advisory Agreement
with Dr. Michael Russak to become a member of the Company’s Scientific Advisory
Board. The Company compensates Dr. Moore $1,000 per month for his services.
Note
6 — Stock Options and Warrants:
Stock
Option Plan
On
January 5, 2007, the Board of Directors of XsunX resolved to establish the
Company’s 2007 Stock Option Plan to enable the Company to obtain and retain the
services of the types of employees, consultants and directors who could
contribute to the Company’s long range success and to provide incentives which
are linked directly to increases in share value which will inure to the benefit
of all stockholders of the Company. A total of 20,000,000 shares of common
stock
are authorized under the plan.
Stock-Based
Compensation
Effective
September 30, 2007, XsunX adopted SFAS No. 123(R), (“Share-Based Payment” (SFAS
No. 123(R)). This statement replaces SFAS No. 123, “Accounting for Stock-Based
Compensation” (SFAS No. 123) and supersedes APB No. 25. SFAS No. 123(R) requires
that all stock-based compensation be recognized as an expense in the financial
statements and that such cost be measured at the fair value of the grant.
This
statement was adopted using the modified prospective method of application,
which requires us to recognize compensation expense on a prospective basis.
Therefore, prior period financial statements have not been restated. Under
this
method, in addition to reflecting compensation expense for new share-based
grants, expense is also recognized to reflect the remaining service period
of
grants that had been included in pro-forma disclosures in prior periods.
XsunX
records the fair value of stock-based compensation grants as an expense.
In
order to determine the fair value of stock options on the date of grant,
XsunX
applies the Black-Scholes option-pricing model. Inherent in this model are
assumptions related to expected stock-price volatility, option life, risk-free
interest rate and dividend yield. While the risk-free interest rate and dividend
yield are less subjective assumptions, typically based on factual data derived
from public sources, the expected stock-price volatility and option life
assumptions require a greater level of judgment.
XsunX
uses an expected stock-price volatility assumption that is based on historical
implied volatilities of the underlying stock which is obtained from public
data
sources. With regard to the weighted-average option life assumption, XsunX
considers the exercise behavior of past grants and models the pattern of
aggregate exercises. Patterns are determined on specific criteria of the
aggregate pool of optionees. Forfeiture rates are based on the Company’s
historical data and future estimates for stock option forfeitures. There
are
17,312,000 options and warrants issued of which 8,768,167 are vested. The
exercise price range for the Company’s options and warrants are $0.15 to $1.69.
The weighted average remaining life of the option and warrant grants range
from
.3 years to 4.9 years. We have based our expected volatility on the historical
performance of our stock adjusted for extreme period of volatility that resulted
from unusual events. The range of volatility for our options and warrants
is 53
to 86 based on the specific grant. The risk free interest rate used in our
calculation was 3.54%. Total net stock-based compensation expense is
attributable to the granting of and the remaining requisite service periods
of
stock options previously granted. Compensation expense attributable to net
stock-based compensation in fiscal 2007 was $325,303, increasing basic loss
$.002 per share.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
6 — Stock Options and
Warrants: – (continued)
Warrant
Grants
There
were no Warrants issued by the Company in the year ended September 30, 2007.
Stock
Option Plan Grants
During
the year ended September 30, 2007 the board of directors authorized the grant
of
options to purchase an aggregate of 2,200,000 shares of the Company’s common
stock of which 1,950,000 remain authorized. Such options are exercisable
at
prices ranging from $.41 to $.53 per share, and expire at various times through
August 2012.
The
following represents a detailed analysis of the 2007 stock option grants.
Consulting
Incentive Options: In connection with entering into a Consulting and Advisory
Agreement effective January 26, 2007 with Dr. John Moore for two years service
as Chairman of the Company’s Scientific Advisory Board, the Company issued to
Dr. Moore 150,000 options under the terms of a Stock Option Agreement, with
an
exercise price of $.46 per share. The options have a 5 year exercise term
and
vest under the following provisions:
|
(b)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of April 26, 2007. Thereafter, the Option shall vest
become
exercisable at the rate of 18,750 Shares per calendar quarter,
or any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Jeff Huitt for two years service
as
Chief Financial Officer, the Company issued to Mr. Huitt 500,000 options
under
the terms of a Stock Option Agreement effective January 26, 2007, with an
exercise price of $.46 per share. The options have a 5 year exercise term
and
vest under the following provisions:
|
(c)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(d)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Robert Wendt for two years service
as
Vice President of Engineering, the Company issued to Mr. Wendt 500,000 options
under the terms of a Stock Option Agreement effective January 26, 2007, with
an
exercise price of $.46 per share. The options have a 5 year exercise term
and
vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Kurt Laetz for two years service
as
Vice President of Sales, the Company issued to Mr. Laetz 250,000 options
under
the terms of a Stock Option Agreement effective January 26, 2007, with an
exercise price of $.46 per share. As of September 30, 2007 Mr. Laetz no longer
worked for the Company and the above referenced option grant was terminated
and
the available options were returned to the pool of available options under
the
XsunX 2007 Stock Option Plan.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
6 — Stock Options and
Warrants: – (continued)
Employment
Incentive Options — In connection with entering into an Employment
Agreement effective January 1, 2007 with Joseph Grimes for two years service
as
Chief Operating Officer, the Company issued to Mr. Grimes 500,000 options
under
the terms of a Stock Option Agreement effective January 26, 2007, with an
exercise price of $.46 per share. The options have a 5 year exercise term
and
vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 50,000 shares upon the
First
Vesting Date of April 1, 2007. Thereafter, the Option shall vest
and
become exercisable at the rate of 50,000 Shares per calendar quarter
up to
a total of 400,000 shares.
|
|
(b)
|
This
Option shall also become exercisable in the amount of 50,000 shares
for
each of the first two sales/licensure of an XsunX system.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective February 22, 2007 with Dr. Edward Yu for two years service
as a member of the Company’s Scientific Advisory Board, the Company issued to
Dr. Yu 100,000 options under the terms of a Stock Option Agreement, with
an
exercise price of $.53 per share. The options have a 5 year exercise term
and
vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of May 23, 2007. Thereafter, the Option shall vest
become
exercisable at the rate of 12,500 Shares per calendar quarter,
or any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective April 23, 2007 with Dr. Richard Ahrenkiel for two years
service as a member of the Company’s Scientific Advisory Board, the Company
issued to Dr. Yu 100,000 options under the terms of a Stock Option Agreement,
with an exercise price of $.45 per share. The options have a 5 year exercise
term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of July 24, 2007. Thereafter, the Option shall vest
become
exercisable at the rate of 12,500 Shares per calendar quarter,
or any
apportioned amount thereof, during the term of engagement of the
Optionee
by XsunX.
|
Consulting
Incentive Options: In conjunction with entering into a Consulting and Advisory
Agreement effective August 28, 2007 with Dr. Michael Russak for two years
service as a member of the Company’s Scientific Advisory Board, the Company
issued to Dr. Russak 100,000 options under the terms of a Stock Option
Agreement, with an exercise price of $.41 per share. The options have a 5
year
exercise term and vest under the following provisions:
|
(a)
|
The
Option became exercisable in the amount of 12,500 shares upon the
First
Vesting Date of November 29, 2007. Thereafter, the Option shall
vest
become exercisable at the rate of 12,500 Shares per calendar quarter,
or
any apportioned amount thereof, during the term of engagement of
the
Optionee by XsunX.
|
The
total
charged in expense for the 2007 fiscal year was $325,303 for the issuance
of the
above described warrants and stock options.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
6 — Stock Options and
Warrants: – (continued)
A
summary
of option and warrant activity for the years ended September 30, 2007, 2006
and
2005 is as follows:
|
|
Number of
Options/
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
Accrued
Options/
Warrants
Exercisable
|
|
Weighted-
Average
Exercise Price
|
|
Outstanding,
September 30, 2004
|
|
|
8,000,000
|
|
$
|
0.15
|
|
|
5,500,000
|
|
$
|
0.15
|
|
Granted
2005
|
|
|
7,125,000
|
|
$
|
0.17
|
|
|
6,708,334
|
|
$
|
0.17
|
|
Exercisable
from 2004 in 2005
|
|
|
—
|
|
|
|
|
|
1,200,000
|
|
|
0.15
|
|
Outstanding,
September 30, 2005
|
|
|
15,125,000
|
|
$
|
0.16
|
|
|
13,408,334
|
|
$
|
0.16
|
|
Granted
2006
|
|
|
11,987,000
|
|
$
|
0.36
|
|
|
5,543,000
|
|
$
|
0.46
|
|
Exercised
2006
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
|
(4,375,000
|
)
|
$
|
0.48
|
|
Exercised
from 2004 in 2006
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
|
(100,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2006
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
|
(6,375,000
|
)
|
$
|
0.17
|
|
Exercisable
from 2004 in 2006
|
|
|
—
|
|
|
|
|
|
300,000
|
|
$
|
0.15
|
|
Exercisable
from 2005 in 2006
|
|
|
—
|
|
|
|
|
|
300,000
|
|
$
|
0.20
|
|
Outstanding,
September 30, 2006
|
|
|
16,262,000
|
|
|
|
|
|
8,701,334
|
|
|
|
|
Granted
2007
|
|
|
1,950,000
|
|
$
|
0.46
|
|
|
554,167
|
|
$
|
0.46
|
|
Exercised
2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Exercised
from 2004 in 2007
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
|
(900,000
|
)
|
$
|
0.15
|
|
Exercised
from 2005 in 2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Exercised
from 2006 in 2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Exercisable
from 2004 in 2007
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
Exercisable
from 2005 in 2007
|
|
|
—
|
|
|
|
|
|
116,666
|
|
$
|
0.20
|
|
Exercisable
from 2006 in 2007
|
|
|
—
|
|
|
|
|
|
296,000
|
|
$
|
0.51
|
|
Outstanding,
September 30, 2007
|
|
|
17,312,000
|
|
$
|
0.33
|
|
|
8,768,167
|
|
$
|
0.22
|
|
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
6 — Stock Options and
Warrants: – (continued)
At
September 30, 2007, the range of option/warrant prices for shares under
options/warrants not exercised and the weighted-average remaining contractual
life is as follows:
|
|
Options/Warrants Outstanding
|
|
Options/Warrants Exercisable
|
|
Range of Option/
Warrant Prices
|
|
Number of
Options/
Warrants
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual
Life (yr)
|
|
Number of
Options/
Warrants
|
|
Weighted-Average
Exercise Price
|
|
$
0.15
|
|
|
7,000,000
|
|
$
|
0.15
|
|
|
1.9
|
|
|
6,000,000
|
|
$
|
0.15
|
|
$
0.20
|
|
|
750,000
|
|
$
|
0.20
|
|
|
0.3
|
|
|
750,000
|
|
$
|
0.20
|
|
$
0.25
|
|
|
7,000,000
|
|
$
|
0.25
|
|
|
3.0
|
|
|
1,000,000
|
|
$
|
0.25
|
|
$
0.41
|
|
|
100,000
|
|
$
|
0.41
|
|
|
4.9
|
|
|
4,167
|
|
$
|
0.41
|
|
$
0.45
|
|
|
100,000
|
|
$
|
0.45
|
|
|
4.6
|
|
|
20,833
|
|
$
|
0.45
|
|
$
0.46
|
|
|
1,650,000
|
|
$
|
0.46
|
|
|
4.3
|
|
|
500,000
|
|
$
|
0.46
|
|
$
0.51
|
|
|
500,000
|
|
$
|
0.51
|
|
|
3.8
|
|
|
352,000
|
|
$
|
0.51
|
|
$
0.53
|
|
|
100,000
|
|
$
|
0.53
|
|
|
4.4
|
|
|
29,167
|
|
$
|
0.53
|
|
$
1.69
|
|
|
112,000
|
|
$
|
1.69
|
|
|
3.5
|
|
|
112,000
|
|
$
|
1.69
|
|
|
|
|
17,312,000
|
|
|
|
|
|
|
|
|
8,768,167
|
|
|
|
|
Note
7 — Marketable Production Machine Acquisition:
Subject
to the terms of the Expanded Use License Agreement dated October 12, 2005
between XsunX and MVSystems, Inc. the parties are building a first run
production machine for the purpose of demonstrating certain thin film solar
cell
manufacturing technology for commercial viability. As of September 30, 2007
the
machine was substantially assembled and was in the process of validating
operating software, systems operation, and general testing to ascertain
functionality, suitability for intended use, and safety. Upon completion
of
these operations the machine will undergo an acceptance testing procedure
prior
to final certification and the ability to market the machine. During this
period
of testing and pre-sale, the production machine is being depreciated over
five
years using the straight line method. Depreciation on this production machine
began in mid September 2007. Upon completion of this phase of the production
machine usage, the parties intend to sell this first machine and have agreed
to
a 50/50 split of the net proceeds of the sale of this machine excluding
production costs and reasonable marketing expenses. Upon the sale of the
production machine, the asset will be treated as inventory at the depreciated
asset value at the time of the sale. The valuation of this asset is based
on the
contracted delivery price in the Expanded Use License Agreement dated October
12, 2005. The valuation is reviewed quarterly using replacement cost and
estimated potential sales price estimates. It is the policy of the Company
to
write down the value of this asset if these estimates are less than the current
book value.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
8 — Notes, Commitments, and Contingencies:
Trademark
Transfer Agreement
In
November 2007, the Company elected not to complete the trademark transfer
agreement for “POWER GLASS.” The value of the Trademark is minimal given the
Company’s expanded focus on manufacturing. As a result, $40,000 previous
recorded as an asset associated with this Trademark were written off effective
September 30, 2007 and recorded in research and development expense.
Operating
Leases
In
April
2006 the Company entered into a three year lease for operations facilities
in
Golden, CO. The Company provided a $2,615 security deposit and expensed $79,867
in costs associated with tenant improvements to the facilities in preparation
for occupancy. The following is a schedule, by years, of the minimum base
payments required under this operating lease for facilities. An additional
$905
monthly is also due as a pro rata share equaling 4.12% of the operating costs
for real estate taxes, assessments, and the expenses of operating and
maintaining common areas within the commercial grounds surrounding the leased
facilities.
Rent Schedule
|
|
Annual
Rate/sf
|
|
Annualized
Rent
|
|
Monthly Rent
|
|
7/1/06 – 6/30/07
|
|
$
|
6.75
|
|
$
|
20,250.00
|
|
$
|
1,687.50
|
|
7/1/07 – 6/30/08
|
|
$
|
6.95
|
|
$
|
20,850.00
|
|
$
|
1,737.50
|
|
7/1/08 – 6/30/09
|
|
$
|
7.16
|
|
$
|
21,480.00
|
|
$
|
1,790.00
|
|
Agreement
for the Sale of Equipment
The
Company has entered into agreements for the sale of certain vacuum deposition
technology equipment valued at $41,800,000, excluding royalty payments based
on
per watt annualized production totals. The agreements, consisting of a systems
sale and a royalty based manufacturing license agreement, provide for thin
film
photovoltaic production equipment and two product development tools specializing
in the fabrication of micro-crystalline and amorphous thin film silicon solar
cells. Manufacture of the product development tools was scheduled to begin
in
June 2007 upon receipt of initial payments from the buyer. The Company extended
the down payment requirement by three months on July 17, 2007. The down payment
was not received by the due date. As of the date of this report, the Company
has
notified the buyer of the termination of the purchase and license agreement.
Legal
Proceedings
None
Note
9 — Planned Expansion of Business Operations:
In
March
XsunX launched efforts to expand the scope of business development efforts
to
include the planned establishment of a solar energy module manufacturing
facility to be located in Oregon, USA. The Company intends to finance the
associated costs for the build out of new facilities in a series of debt
and/or
equity financings.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
10 — Note Receivable:
On
January 1, 2007, XSUNX, Inc. issued a secured, seven year, 10% note to Sencera,
LLC in the amount up to $1,500,000. Under the terms, the Company provided
Sencera, LLC with $400,000 at the time of signing and $137,500 per month
for up
to eight months. These funds are to be used to develop technology and obtain
licenses in agreement with the Technology Development and License Agreement
between Sencera and XsunX, Inc also signed on January 1, 2007. The note may
be
converted into a membership interest in Sencera, LLP and an extension of
the
license for a period of three years. The security consists of the license
rights, the ability to exercise the conversion and all other rights and remedies
provided by law.
On
September 7, 2007, XsunX initiated the final funding of disbursements under
a
Promissory Note and Loan Agreement dated January 1, 2007, between XsunX and
a
private technology development firm. Under the Promissory Note and Loan
Agreement XsunX has funded and extended the principal amount of $1,500,000
dollars to the private firm.
Use
of
the licensed plasma technology by XsunX in any of its planned or future
processes or products has and continues to be subject to completion of
development by Sencera, LLC, substantiation of intended performance criteria
under the agreements, and determination of commercial application suitability
by
XsunX.
As
of
September 30, 2007 the current balance of the note receivable was $1,500,000
plus accrued interest earned of $143,452.
Note
11 — Other Income — Legal Settlement:
Effective
March 23, 2007 XsunX entered into a binding letter of intent (“LOI”) with a
manufacturer (the “Seller”) of photovoltaic products for the purchase of certain
net assets of the manufacturer for the amount of five million dollars
($5,000,000) USD in a cash transaction.
On
or
about April 27, 2007 the Company was notified by the Seller of a change in
direction and decision not to complete the sale of assets under the LOI
agreement. XsunX filed a complaint (“Lawsuit”) against the Seller and related
entities in the United States District Court for the District of Massachusetts
on May 10th, 2007, alleging breach of contract and other claims.
On
August
23, 2007 the Seller and XsunX entered into a settlement agreement
(“Settlement”). The Settlement became effective upon the transfer by the Seller
to XsunX of one million one hundred thousand dollars USD ($1,100,000) on
August
27, 2007.
Upon
the
effectiveness of the Settlement counsel for each of the parties filed with
the
United States District Court for the District of Massachusetts a Stipulation
of
Dismissal with Prejudice thereby dismissing the Lawsuit with prejudice. Each
of
the parties has unconditionally and irrevocably released, waived, and forever
discharged each other from claims related to the LOI and the Lawsuit.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
12 — Subsequent Events:
Financing
On
November 1, 2007, XsunX signed a $21 million common stock purchase agreement
with Fusion Capital Fund II, LLC, an Illinois limited liability Company (“Fusion
Capital”). Upon signing the agreement, XsunX received $1,000,000 from Fusion
Capital as an initial purchase under the $21 million commitment in exchange
for
3,333,332 shares of our common stock. Concurrently with entering into the
common
stock purchase agreement, we entered into a registration rights agreement
with
Fusion Capital. Under the registration rights agreement, we agreed to file
a
registration statement related to the transaction with the U.S. Securities
&
Exchange Commission (“SEC”) covering the shares that have been issued or may be
issued to Fusion Capital under the common stock purchase agreement. After
the
SEC has declared effective the registration statement related to the transaction
we have the right over a 25-month period to sell our shares of common stock
to
Fusion Capital, from time to time, in amounts up to $1 million per sale,
depending on certain conditions as set forth in the agreement, up to the
full
aggregate commitment of $21 million.
The
purchase price of the shares related to the $20 million balance of future
funding will be based on the prevailing market prices of the Company’s shares at
the time of sales without any fixed discount, and the Company will control
the
timing and amount of any sale of shares to Fusion Capital. There are no upper
limits to the price Fusion Capital may pay to purchase our common stock.
However, Fusion Capital shall not be obligated to purchase any shares of
our
common stock on any business day that the price of our common stock is below
$0.20. There are no negative covenants, restrictions on future funding(s),
penalties or liquidated damages in the agreement. The common stock purchase
agreement may be terminated by us at any time at our discretion without any
cost
to us.
In
consideration for entering into the $21 million agreement we agreed to issue
to
Fusion Capital 3,500,000 shares of our common stock as financing commitment
shares which Fusion Capital has agreed to hold for the term of the common
stock
purchase agreement. Additionally, under the stock purchase agreement we granted
Fusion Capital common stock purchase warrants to purchase 1,666,666 shares
of
our common stock at $0.50, and 1,666,666 shares of our common stock at $0.75.
The shares underlying the warrant grants do not carry mandatory registration
requirements under the terms of the common stock purchase agreement and
registration rights agreement.
The
proceeds received by the Company under the common stock purchase agreement
are
expected to be used to build an initial base production system delivering
full
size commercial quality solar modules, and initiate the manufacture of the
first
of four (4) planned 25 100 megawatt thin film solar module production facility.
Proceeds may also be used to lease and prepare manufacturing facilities with
the
necessary support systems for the manufacturing line, inventory, staff, and
general working capital.
Changes/Additions
to the Board of Directors
On
November 12, 2007, the Company announced the appointment of Mr. Oz Fundingsland
as Director, effective November 12, 2007. Mr. Fundingsland brings over forty
years of sales, marketing, executive business management, finance, and corporate
governance experience to XsunX. His professional and business experience
principally originated with his tenure, commencing in 1964, at Applied Magnetics
Corp., a disk drive and data storage company. Prior to his retirement from
Applied Magnetics in 1994, Mr. Fundingsland served as an Executive Officer
and
Vice President of Sales and Marketing for 11 years directing sales growth
from
$50 million to over $550 million. Commencing in 1993 through 2003 Mr.
Fundingsland served as a member of the board of directors for the International
Disk Drive Equipment Manufacturers Association “IDEMA” where he retired
emeritus, and continues to serve as an advisor to the board. For the last
13
years, Mr. Fundingsland has provided consulting services assisting with sales,
marketing, and management to a host of companies within the disk drive, optical,
software, and LED industries.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
12 — Subsequent
Events: – (continued)
On
November 28, 2007, the Company announced the appointment of Dr. Michael A.
Russak as a Director, effective November 26, 2007. Dr. Russak is also a member
of the Company’s Scientific Advisory Board. Dr. Russak has over thirty five
years of industrial experience progressing from a research scientist to senior
executive officer of two public companies. He has expertise in thin film
materials and devices for magnetic recording, photovoltaic, solar thermal
applications, semiconductor devices as well as glass, glass-ceramic and ceramic
materials. He also has over twelve years experience at the executive management
level of public companies with significant off shore development and
manufacturing functions. He received his B.S. in Ceramic Engineering in 1968
and
Ph.D. in Materials Science in 1971, both from Rutgers University in New
Brunswick, NJ. During his career, he has been a contributing scientist and
program manager at the Grumman Aerospace Corporation, a Research Staff Member
and technical manager in the areas of thin film materials and processes at
the
Research Division of the IBM Corporation at the T.J. Watson Research
Laboratories. In 1993, he joined HMT Technology, a manufacturer of thin film
disks for magnetic storage, as Vice President of Research and Development.
His
responsibilities included new product design and introduction. Dr. Russak
became
Chief Technical Officer of HMT and held that position until 2000 when HMT
merged
with Komag Inc. Dr. Russak was appointed President and Chief Technical Officer
of the combined company. He continued to set technical, operational and business
direction for Komag until his retirement at the end of 2006. Dr. Russak is
currently Executive Director of IDEMA-US, the trade association for the Hard
Disk Drive Industry. He has published over 90 technical papers, and holds
23
U.S. patents.
Executive
Compensation
The
Board
of Directors of the Company Authorized Salary Increases effective November
6,
2007 for the following individuals:
Tom
Djokovich
|
|
Chief
Executive Office
|
|
$70,000.00
Increase to $220,000.00
|
Joseph
Grimes
|
|
Chief
Operating Officer
|
|
$60,000.00
Increase to $210,000.00
|
Jeff
Huitt
|
|
Chief
Financial Officer
|
|
$20,000.00
Increase to $155,000.00
|
Stock
Option Plan Grants
As
part
of a plan for the Company to provide stock based incentives to employees
and
consultants, and attract new employees and members to its board of directors,
the Company engages in a policy of providing stock option grants. Between
the
period beginning October 1, 2007 and the date of this report, the board of
directors authorized the grant of options to purchase an aggregate of 3,800,000
shares of the Company’s common stock. Such options are exercisable at the price
of $.36 per share, and expire at various times through November 2012.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
12 — Subsequent
Events: – (continued)
Employment
Incentive Option Grants — In connection with the start of the
Company’s efforts to prepare, install, and operate solar module manufacturing
capabilities the Company authorized employment incentive option grants to
the
following employees on October 23rd 2007 at an exercise price per share of
$0.36. The options were issued in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933. The options have
a 5
year exercise term and vest in conjunction with a performance milestone based
vesting schedule as described below:
Joseph
Grimes
|
|
500,000
Option Shares
|
Robert
G. Wendt
|
|
500,000
Option Shares
|
Dr.
Guang Lin
|
|
300,000
Option Shares
|
The
vesting schedule for Mr. Grimes and Mr. Wendt is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee(s) of the following performance milestones
as
they may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
|
(a)
|
100,000
shares upon the assembly and commissioning of the base line production
system.
|
|
(b)
|
100,000
shares upon the production of a commercial size working sample
of the
Company’s planned tandem junction amorphous silicon solar module.
|
|
(c)
|
300,000
shares upon the assembly and commissioning of the initial 25 mega
watt
production system as contemplated within the Company’s phased build out
plan for a solar module manufacturing facility.
|
The
vesting schedule for Dr. Guang is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following performance milestones as
they
may relate to the Company’s phased build out plan for a solar module
manufacturing facility:
|
(a)
|
100,000
shares upon the assembly and commissioning of the base line production
system.
|
|
(b)
|
150,000
shares upon the production of a commercial size working sample
of the
Company’s planned tandem junction amorphous silicon solar module.
|
|
(c)
|
50,000
shares upon the assembly and commissioning of the initial 25 mega
watt
production system as contemplated within the Company’s phased build out
plan for a solar module manufacturing facility.
|
Board
of
Directors Incentive Option Grants — In furtherance of the Company’s
policy to compensate current members, and attract new members, to its Board
of
Directors, the Company authorized incentive option grants to the following
Directors at an exercise price per share of $0.36. The options were issued
in a
transaction exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.The options carry 5 year exercise terms and vest as described
below:
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
12 — Subsequent
Events: – (continued)
Thomas
Anderson
|
|
October
23, 2007
|
|
1,500,000
Option Shares (*)
|
Oz
Fundingsland
|
|
November
11, 2007
|
|
500,000
Option Shares
|
Dr.
Michael Russak
|
|
November
26, 2007
|
|
500,000
Option Shares
|
The
vesting schedule for Mr. Anderson:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
The
Option became exercisable in the amount of 1,000,000 shares upon
the
effective date of the grant for services rendered as a member of
the
Company Board of Directors from the period beginning October 1,
2003
through September 30, 2007.
|
|
(b)
|
Beginning
October 1, 2007, the Option shall vest and become exercisable at
the rate
of 62,500 Shares upon the anniversary of each calendar quarter
of
continuous service as a Director, or prorated portion thereof,
for
services rendered as a member of the Company Board of Directors
up to a
total of 250,000 shares.
|
The
vesting schedule for Mr. Fundingsland is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning
November 12, 2007, the Option shall vest and become exercisable
at the
rate of 62,500 Shares upon the anniversary of each calendar quarter
of
continuous service as a Director, or prorated portion thereof,
for
services rendered as a member of the Company Board of Directors
up to a
total of 500,000 shares.
|
The
vesting schedule for Dr. Russak is:
The
Option shall become exercisable in the following amounts upon the delivery
and/or achievement by Optionee of the following milestones:
|
(a)
|
Beginning
November 26, 2007 the Option shall vest and become exercisable
at the rate
of 62,500 Shares upon the anniversary of each calendar quarter
of
continuous service as a Director, or prorated portion thereof,
for
services rendered as a member of the Company Board of Directors
up to a
total of 500,000 shares.
|
(*)
Amendment to Stock Option Grant — On November 12, 2007 the Company
entered into an agreement amending the terms of a stock option grant dated
October 23, 2007 between the Company and Mr. Thomas Anderson, a member of
the
XsunX Board of Directors. The amendment provided for an increase of 250,000
options to the pool of options available within the vesting provisions of
the
grant. All other provision of the stock option grant remained the same. The
vesting schedule for item (b) was amended as follows:
|
(b)
|
Beginning
October 1, 2007 the Option shall vest and become exercisable at
the rate
of 62,500 Shares upon the anniversary of each calendar quarter
of
continuous service as a Director, or prorated portion thereof,
for
services rendered as a member of the Company Board of Directors
up to a
total of 500,000 shares.
|
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
13 — Financial Accounting Developments:
Recently
issued Accounting Pronouncements
SFAS
155 — ‘Accounting for Certain Hybrid Financial
Instruments — an amendment of FASB Statements No. 133 and 140’ This
Statement, issued in February 2006, amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation
Issue
No. D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.” This Statement:
|
(a)
|
Permits
fair value remeasurement for any hybrid financial instrument that
contains
an embedded derivative that otherwise would require bifurcation
|
|
(b)
|
Clarifies
which interest-only strips and principal-only strips are not subject
to
the requirements of Statement 133
|
|
(c)
|
Establishes
a requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation
|
|
(d)
|
Clarifies
that concentrations of credit risk in the form of subordination
are not
embedded derivatives
|
|
(e)
|
Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains
to a
beneficial interest other than another derivative financial instrument.
|
This
Statement is effective for all financial instruments acquired or issued after
the beginning of our first fiscal year that begins after September 15, 2006.
The
fair
value election provided for in paragraph 4(c) of this Statement may also
be
applied upon adoption of this Statement for hybrid financial instruments
that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our
fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
The
Company is currently reviewing the effects of adoption of this statement
but it
is not expected to have a material impact on our financial statements.
XSUNX,
INC.
(A
Development Stage Company)
Notes
to Financial Statements
September
30, 2007
Note
13 — Financial Accounting
Developments: – (continued)
SFAS
156 — ‘Accounting for Servicing of Financial Assets — an
amendment of FASB Statement No. 140’
This
Statement, issued in March 2006, amends FASB Statement No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
with respect to the accounting for separately recognized servicing assets
and
servicing liabilities. This Statement:
|
(1)
|
Requires
an entity to recognize a servicing asset or servicing liability
each time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract in certain situations.
|
|
(2)
|
Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if practicable.
|
|
(3)
|
Permits
an entity to choose either the amortization method or the fair
value
measurement method for each class of separately recognized servicing
assets and servicing liabilities.
|
|
(4)
|
At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities
with
recognized servicing rights, without calling into question the
treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities
|
|
|
|
|
|
are
identified in some manner as offsetting the entity’s exposure to changes
in fair value of servicing assets or servicing liabilities that
a servicer
elects to subsequently measure at fair value.
|
|
(5)
|
Requires
separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial
position
and additional disclosures for all separately recognized servicing
assets
and servicing liabilities.
|
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on our financial statements.
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